Questions tagged [abnormal-returns]

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event study and Covid-19 using panel data problem

I am doing my master thesis and my subject is how covid-19 has affected the stock market. I have already calculated abnormal returns and CARS using market model and OLS regression for different ...
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3answers
145 views

What is better: A negatively skewed return or a positively skewed returns distribution?

I noticed that in certain literature, like in CFA level 1, the theory put forth is that someone should prefer positively skewed returns as mean > median > mode. But why is that? Based on a ...
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34 views

Buy-and-hold raw and abnormal returns

This may seem like a silly question, but I have trouble understanding the concept. I am performing regressions where the dependent variables are raw buy-and-hold returns and abnormal buy-and-hold ...
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45 views

Matching periodicity Fama-French Factors, Portfolio Return and Risk Free rate

I am trying to replicate certain aspects of the following paper: "Does the stock market fully value intangibles? Employee satisfaction and equity prices" - Alex Edmans (2011) for three ...
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1answer
248 views

Do normal returns make the mean-variance portfolio model perform properly?

The Markowitz mean-variance model is known to suffer from estimation error due to financial returns not meeting the assumptions of a normal distribution, providing portfolio weights that underperform ...
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5answers
260 views

Why worry about fat tails, if you can use stoploss?

Sorry this might sound a silly question, but -humbly- I don't understand why models assume that returns range from [-∞,+∞] instead of [-stoplimit, +takeprofit]. A common objection to most models is "...
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41 views

How to Risk and Return using Carhart 4 factor model

I have to calculate firm risk and return for a group of firms. I have firm CUSIPs. I also have access to CRSP data from WRDS. Can someone explain to me how I can use CRSP and data from Ken French’s ...
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3answers
291 views

Why can we assume that asset return rates are normally (or lognormally) distributed?

In many theories of financial mathematics it is assumed that asset return rates are normally distributed (e.g. VaR models) or lognormally distributed (e.g. Black-Scholes model). In practice, asset ...
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0answers
37 views

Running regression to analyse how leverage changes around

I am running a single variable regression with BHAR returns as independent variable and Leverage as dependent variable. I would like to analyse does the leverage 1 year prior to IPO and 1 year after ...
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0answers
38 views

Negative abnormal stock return and permanent impact

Assume we have a day where stock price falls many standard deviations of the mean (e.g >3) . How could we test, in terms of time-series, if this negative shock is permanent or deminishes in the long ...
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0answers
51 views

Generate P Value from stationary bootstrap following Politis & Romano (1994)

For my master thesis I am analyzing the performance of trading strategies. For this I need to avoid data snooping by utilising the FDR approach. I follow closely the procedure presented by Bajgrowicz &...
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2answers
180 views

EuroStoxx50: long index and short futures

If you look at a cumulative return of a very simple portfolio, consisting of long EuroStoxx50 total return index and short EuroStoxx50 futures, you can see that over the last 10 years this portfolio ...
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1answer
306 views

Optimize portfolio of non-normal binary return assets

I am facing t = 1,..T investment periods where each period I have x$ to invest. Suppose each period I can build a portfolio from thousands of assets (some are uncorrelated whilst some are highly ...
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0answers
17 views

Factors affecting magnitude of responsiveness to acquisition announcements?

I have a dataset of stock returns immediately following rumors of or confirmations of acquisitions. It is clear that either the stock does not react, or the stock experiences a strong positive return ...
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1answer
6k views

Computing Buy-and-hold abnormal returns (BHARs) $= \prod_{t=\tau_1}^{\tau_2}(1+R_{i,t}) - \prod_{t=\tau_1}^{\tau_2}(1+R_{m,t})$

I am doing an event study and wanted to know if was going about this correctly$$ \text{BHAR}_{i(\tau_1,\tau_2)}\quad=\quad\prod_{t=\tau_1}^{\tau_2}(1+R_{i,t})~-~\prod_{t=\tau_1}^{\tau_2}(1+R_{m,t}) $$ ...
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1answer
334 views

Fame-French alpha for a single stock

I want to study the impact of corporate culture on risk-adjusted stock returns. After quantifying corporate culture I wanted to use panel methodology (I have a sample of 100 S&P500 companies over ...
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3answers
878 views

Interpretation of t-test in event study with dummy regression

I am not sure about my interpretation of the t-ratios in dummy regression models for event studies. I have the results for two different groups of models examining the impact of news on stock returns ...