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Question #49: t-test fpr CAAR

Dear Dr. Müller,

for the t-test (mentioned on eventstudytools - parametric test statistics number 1) it is possible to test H0:ARi,t=0 and H0:CARi=0.

For my study I am using the paper of MacKinlay (1997). On page 24, formula (20), he used a test of which I thougt that it is a t-test for CAAR. Dymke (2010) used this formula of MacKinlay on page 77 too. But on page 79 he talks about the parametric test of Brown/Warner (1985).

I am confused and need some help.

Thanks in advance.
Daniel

Answer by Dr. Simon Müller:
Hi. You are correct formula (20) on page 24 is a CAAR t-test. This is the same test as in point 2 on our test statistic page. Brown and Warner uses this test in their publication (1985), so you may name this test "parametric test of Brown/Warner", but this is not common. More common is Cross-sectional test. Best, Simon
Question #48: Test statistic formula for CARs

Hi,

I am happy to use information you provide on your great website to do my event study.

I was wondering about the formula of the standard deviation of CARs for each firm. S2CAR = L2*S2*ARi.

What is meant by L2?
Is it the number of days of the event period?
Or is it the number of day of the subperiod of my event in case i want to check the significance of t-3 - t+3 for each firm (=7)??

Is L2 multipled by S2*ARi or does it mean that I should use S2*ARi of the event window?

I would be very happy to receive an answer?

Best Wolfgang

Answer by Dr. Simon Müller:
Hi, L2 is the number of non-missing days in the event window. This is a little bit confusing as we want to consider missing values. Next question ("Is L2 multipled by S2*ARi or does it mean that I should use S2*ARi of the event window?") is unclear to me. Which formula? Please be more precise. But L2AR_i means L2 * AR_i. Best, Simon 
Question #47: Z -statistic in Corrado Test

Dear Mr. Mϋller
I’m conducting event study in Indonesian market for my bachelor thesis. Following Sudeck & Iatridis (2014), I will use Patell test and Corrado test to test my hypothesis. I want to ask you several questions:

1. Is it okay not to conduct normality test of my data? I mean, I understand that Patell test is used in case the data are normal, while Corrado test is used when my data are not normally distributed. But I confused, should I just do both test without doing normality test?

2. When I look at Campbell & Minguez-Vera (2010), we will find Z-statistic at the end of Corrado test calculation. Do test its significance, can I use Z-table for comparison? Or should I compare Z-statistic of Corrado test with another statistic table?

Please help me. Thank you very much.

Answer by Dr. Simon Müller:
Hello, 1. You do not need to do a normality test for the Corrado rank test, as there is no such assumption. N should be large enough for valid results. I would advice you to perform both test and have a closer look at the data when the results differs. 2. You can use this a z-table for p-values. Best, Simon
Question #46: Event Study

Sehr geehrter Herr Müller,

mein Name ist Sandip Deol und ich stúdiere Internatrional Finance. Zurzeit habe ich ein Projekt am laufen. In diesem Projekt geht es um Auswertungen von Artikeln die sich auf die Weltwirtschaftskrisen beziehen. Wir bewerten die Artikeln nach einer Skalar. Das Problem vor dem ich stehe ist, dass ich nicht weiß, wie ich meine ausgewerteten Artikeln mit in meine Event Study mit hineinbeziehen kann. Da ich die Dax Kurse mit betrachte, arbeite ich eher mit den Kursen als wie mit meiner Auswertung. Meine Hypothese lautet, ob Artikel Veröffentlichungen eine Weltwirtschaftskrise hervorsehen kann. Könnten Sie mit diesbezüglich helfen ? Könnte ich Sie telefonisch erreichen?

ich wäre Ihnen sehr dankbar dafür.

Mit freundlichen Grüßen

Sandip Deol

Answer by Dr. Simon Müller:
You can find my contact details on my web page: www.muon-stat.com
Question #45: VOLUME EVENT STUDY

I would like to use EventStudyTools for volume eventstudy.

The market data required "mean of log percentage of trading volume of index".

Could you advise me how to derived the value from raw data "volume of index".

thank you

Answer by Dr. Simon Müller:
There is no easy way to get the volume of an index. You have to get the volumes of all companies from that index and then merge it into one variable.
Question #44: Should I use Market Model( OLS ) or Market Model ( Garch)?

Dear Professor,

I conduct ARCH effect tests on the firms in my samples, and find that around half of the firms has significant ARCH effect, while the other half has no ARCH effect.

I wonder which model I should use. The Market Model or the GARCH Model?

Best wishes,
Chelsea

Answer by Dr. Simon Müller:
Hi. I would generally advice to use the GARCH model, as this model can handle volatility changes.
Question #43: T Value for abnormal return

Sir
My event day is different but firms are from different industry so can i divide abnormal return by Standard error for finding the t value or Is there any other method.

Answer by Dr. Simon Müller:
Please read our test statistics page: http://www.eventstudytools.com/significance-tests There you find an answer to your question.
Question #42: Standardized abnormal return

Dear Mr Muller,

I'm conducting an event study analysis and I would like to use the BPM test. My question is how can I calculate the sARi,t (standard deviation)? Is there one for every company at every t?
I hope you can help me and solve my doubt.
Thank you very much.

Best regards,
Francesco

Answer by Dr. Simon Müller:
Hi Francesco, if you look at the definition in our documentation, you will see that there is an exact definition of all variables used. Many definitions of the BMP test formulas are in the description of the Patell test. Simon 
Question #41: Multiple Event Windows

How to prepare the request sheet when looking at more than 1 event window? The sample request sheet is only calculating 1 event window.

Eric Romero

Answer by Dr. Markus Schimmer:
You treat this second event window as an individual observation - meaning, you add another line to the request sheet and calculate the other event window. 
Question #40: Alfa Beta in aARC

In have one question what are alfa and beta in Analysis Report. I know what they mean if I use Market Model

Equation:
http://image.slidesharecdn.com/l2flashcardsportfoliomanagement-ss18-1312...

BUT

I don't know what Alfa and Beta are in FamaFrench 3 Factor Model

Equation
http://3.bp.blogspot.com/-dqWugq0Wotw/Ut8PnxHP-6I/AAAAAAAAAAA/d6_cqU81vt...

Could you help me and explain this?

John

Answer by Dr. Simon Müller:
Hi. You may write the model as: R_it = alpha + beta * R_im + s_i * SMB_t + h_i + epsilon_it. Then it should be clear what alpha and beta is. Simon

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