Questions tagged [abnormal-returns]

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Should I include factor loadings as explanatory variables for regression of abnormal and raw returns?

My research is to explain stock returns in a regression model. My dependent variable is raw returns and abnormal returns calculated from 3-factor model (Fama and French). Besides regressing against my ...
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Can subcomponents of a variable be used as instrumental variable?

I conduct research to assess the relevance of ESG scores on COVID-19 crisis stock returns. To calculate abnormal returns I use time series, but the investigation is actually cross section returns at ...
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State-of-the art factor models for intraday event studies

I want to do intraday event studies. For this purpose, I have stock data on a 15 minutes interval. What is/are currently the state-of-the art factor model(s) for calculating intraday (ab)normal ...
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1 vote
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Why is it that returns at the efficient market hypothesis has to be risk-adjusted?

Let us assume the following situation: Average market return: $R_M = 8\%$ Risk-free rate: $R_F = 2\%$ Actual return of share A after one year: $R_{A} = 15\%$ Actual return of share B after one year: $...
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1 answer
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How to calculate the BHAR (Buy-and-Hold Abnormal Returns)?

I am doing my research related to IPOs long term performance. For the BHAR formula, I just want to clarify the formula is that always compare with the first trading day price, or is compared with last ...
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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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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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4 votes
1 answer
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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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-1 votes
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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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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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1 vote
3 answers
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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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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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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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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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2 answers
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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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2 votes
1 answer
352 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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1 vote
0 answers
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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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2 votes
1 answer
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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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1 vote
1 answer
359 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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3 votes
3 answers
925 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 ...
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