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Single-firm inference in event studies via the permutation test

Author

Listed:
  • Phuong Anh Nguyen
  • Michael Wolf

Abstract

Return event studies generally involve several firms but there are also cases when only one firm is involved. This makes the relevant testing problems, abnormal return (AR) and cumulative abnormal return (CAR), more difficult since one cannot exploit the multitude of firms (by using a relevant central limit theorem, say) to design hypothesis tests. We propose a permutation test which is of nonparametric nature and more generally valid than the tests that have previously been proposed in the literature in this context. We address the question of the power of the test via a brief simulation study and also illustrate the method with two applications to real data.

Suggested Citation

  • Phuong Anh Nguyen & Michael Wolf, 2023. "Single-firm inference in event studies via the permutation test," ECON - Working Papers 425, Department of Economics - University of Zurich, revised Nov 2023.
  • Handle: RePEc:zur:econwp:425
    as

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    File URL: https://www.zora.uzh.ch/id/eprint/229116/7/econwp425.pdf
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    References listed on IDEAS

    as
    1. Doron Kliger & Gregory Gurevich, 2014. "Event Studies for Financial Research," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-137-36879-9, December.
    2. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Cumulative abnormal return; event study; permutation test;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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