Measuring security price performance

Event studies focus on the impact of particular types of firm-specific events on the prices of the affected firms' securities. In this paper, observed stock return data are employed to examine various methodologies which are used in event studies to measure security price performance. Abnormal...

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Bibliographic Details
Published in:Journal of financial economics 1980-09, Vol.8 (3), p.205-258
Main Authors: Brown, Stephen J., Warner, Jerold B.
Format: Article
Language:English
Subjects:
Cluster analysis
Measurement
Returns
Risk
Securities
Security prices
Simulation
Statistical methods
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Summary:Event studies focus on the impact of particular types of firm-specific events on the prices of the affected firms' securities. In this paper, observed stock return data are employed to examine various methodologies which are used in event studies to measure security price performance. Abnormal performance is introduced into this data. We find that a simple methodology based on the market model performs well under a wide variety of conditions. In some situations, even simpler methods which do not explicitly adjust for marketwide factors or for risk perform no worse than the market model. We also show how misuse of any of the methodologies can result in false inferences about the presence of abnormal performance.
ISSN:0304-405X
1879-2774
DOI:10.1016/0304-405X(80)90002-1