Event Studies

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Event studies measure the stock market’s reaction to news or events, and are used by researchers to measure whether corporate actions or governance changes are increasing or decreasing share value. These studies have validity only to the extent that the reader believes that markets are at least partly efficient. Even if so, event studies cannot easily control for confounding events (such as other news released by the company during the measurement period). Moreover, event studies require the researcher to make important risk adjustments when computing excess stock returns. Although several risk adjustments have become “accepted,” their computation is complex, and it is difficult to know whether the researcher made them properly.


Introduction to the Event Study Methodology article