Event studies with daily stock returns in Stata –

Which command to use?

Thomas Kaspereit

UNIVERSITY OF LUXEMBOURG

30 July 2020

1 What are event studies?

2 What should event study commands be able to do?

3 Which commands are available?

4 How do these commands compare to each other?

5 Concluding remarks

Slide 2

1 What are event studies?

2 What should event study commands be able to do?

3 Which commands are available?

4 How do these commands compare to each other?

5 Concluding remarks

What are event studies? Slide 3

Event studies measure stock prices reactions to news.

What are event studies? Slide 4

Event studies measure stock prices reactions to news.

What are event studies? Slide 5

Event studies measure stock prices reactions to news.

Problem:

Every day, security prices and returns are influenced by many other news events than theevent of research interest.

Solution:

Event studies assume that all others news effects cancel out, except the macro-economicnews that affect securities.

Implementation of solution:

Estimation of a (market) index model during the estimation period.

Rit = αi + βiRmt + εi

What are event studies? Slide 6

Event studies measure stock prices reactions to news.

Problem:

Every day, security prices and returns are influenced by many other news events than theevent of research interest.

Solution:

Event studies assume that all others news effects cancel out, except the macro-economicnews that affect securities.

Implementation of solution:

Estimation of a (market) index model during the estimation period.

Rit = αi + βiRmt + εi

What are event studies? Slide 6

Event studies measure stock prices reactions to news.

Problem:

Every day, security prices and returns are influenced by many other news events than theevent of research interest.

Solution:

Event studies assume that all others news effects cancel out, except the macro-economicnews that affect securities.

Implementation of solution:

Estimation of a (market) index model during the estimation period.

Rit = αi + βiRmt + εi

What are event studies? Slide 6

Event studies have been applied to many research questions.

I Is accounting information decision useful?

I Do changes in dividend policy affects shareholder value?

I Do mergers and acquisitions create or destroy shareholder value?

I Do CEO changes/deaths affect share prices?

I Do announcements of adhering to sustainability principles create shareholder value?

I Do Covid 19 news affect stock prices?

I ...

What are event studies? Slide 7

1 What are event studies?

2 What should event study commands be able to do?

3 Which commands are available?

4 How do these commands compare to each other?

5 Concluding remarks

What should event study commands be able to do? Slide 8

Event study commands should have at least have the following features:

1. Data management (transforming calendar time to event time)

2. Calculation of average abnormal returns (market index and other models)

3. Assessment of statistical significance of average abnormal returns.

4. Generating output (abnormal return graph, result tables, etc.)

What should event study commands be able to do? Slide 9

Event study commands should have at least have the following features:

1. Data management (transforming calendar time to event time)

2. Calculation of average abnormal returns (market index and other models)

3. Assessment of statistical significance of average abnormal returns.

4. Generating output (abnormal return graph, result tables, etc.)

What should event study commands be able to do? Slide 9

1 What are event studies?

2 What should event study commands be able to do?

3 Which commands are available?

4 How do these commands compare to each other?

5 Concluding remarks

Which commands are available? Slide 10

There are currently three user-written commands:

I eventstudy (Zhang et al. 2013)

I eventstudy2 (Kaspereit 2015, 2020)

I estudy (Pacicco et al. 2017, 2020)

Which commands are available? Slide 11

1 What are event studies?

2 What should event study commands be able to do?

3 Which commands are available?

4 How do these commands compare to each other?

5 Concluding remarks

How do these commands compare to each other? Slide 12

How do these commands compare to each other? Slide 13

How do these commands compare to each other? Slide 14

What is the level of applicability of the three commands?

Literature screening of three leading field journals:

I Journal of Accounting Research

I Journal of Finance

I Management Science

Selection and analysis of all 180 event studies that appeared in these journals during theperiod 2009–2018.

How do these commands compare to each other? Slide 15

How do these commands compare to each other? Slide 16

How do these commands compare to each other? Slide 17

How do these commands compare to each other? Slide 18

1 What are event studies?

2 What should event study commands be able to do?

3 Which commands are available?

4 How do these commands compare to each other?

5 Concluding remarks

Concluding remarks Slide 19

The three command do not represent evolutions but can be best choices in different sce-narios:

I eventstudy: simple studies, Stata beginners, assessment of statistical significancenot required

I eventstudy2: very complex and large studies, extremely accurate results

I estudy: complexer studies of limited size (<24,000 events), comfortable output(LaTeX), by event assessment of statistical significance

Concluding remarks Slide 20

Many thanks to...

I Bill Rising for setting up and testing my Zoom connection.

I the Stata Corp. crew for organizing the conference.

I Joe Newton for providing valuable input during the ongoing review process in theStata Journal.

Concluding remarks Slide 21