You are here

Question #27: Problem with grouping in CAAR and AAR results

I'm trying to conduct event study with two different groups. I have multiple event days and two groups. Event study tool gives me results from all the different days separately but doesn't show the grouped results in CAAR and AAR file. What could be the problem?

Answer by Dr. Markus Schimmer:
You need to assign two different labels/values to your overall set of events - using the column "grouping variable" in the request file. If the AAR and CAAR results are not correctly calculated, then there is an issue with the data quality of single events that are to be grouped. Try this: Go to your AR and CAR files and search for events that have no results. Discard those events from your request file and re-do your analysis. Like this, you sort out the events that caused the AAR/CAAR aggregation to fail and you should get meaningful AAR and CAAR results.
Question #26: event study intraday

I intend to use intraday event studies with a sample of 1,200 profit announcements issued after the close and before the opening of the B3 stock exchange. Would you have an example of intraday event study implementation to make available (excel, R or other format)? I have read many articles on the subject however, nothing very practical. I would like to adopt some of the novel techniques for detecting jumps. If you can suggest some specific practical literature for reading.

Answer by Dr. Markus Schimmer:
We are working on an intraday EST research app, however, its release may still take some time. In the meantime, I suggest you pick any current publication on the topic and go through its references to navigate the respective research on the subject. One such current publication is: "A Note on Intraday Event Studies" by Ben R. Marshall, Nick Nguyen & Nuttawat Visaltanachoti - it can be found here: https://doi.org/10.1080/09638180.2018.1530606
Question #25: Request File - Event ID;Grouping Variable

I am carrying out an event study analysis based on Market Model for my master thesis and would like to use the EvenStudyTools Application. I have a question regarding the request file field 'Event ID'. According to the sample file an ID for various events should be introduced. In my case, I have only one event which affects 20 companies. How should I complete this field? I tried with the same event number for all the companies and it did not work because of duplicate entry in the event data. It did work though with different IDs, but I am not sure if it is correct for the same event.

And also I would like to ask regarding the field Grouping Variable. In the sample file this field is completed with an 'Addition'. What exactly should be in this field?

Answer by Dr. Markus Schimmer:
Each event-firm combination should have its own ID. The ID is only there as a reference so that you can link back the results from the result files to the events you listed in the request files. With the grouping variable, you can define subsets of your overall set of "events". The sample data was chosen from a study on additions and deletions of companies to/from indices (i.e., index reconstitutions). When trimming down the request file, I mistakenly only chose events that were additions to indices - sorry for creating confusion with this.
Question #24: Event Study Calculator Instructions (ARC)

I am writing to you concerning the Event Study Calculator. Indeed, I would like to use this helpful tool but I am confused with two elements:
- In what code should the firm ID be? (ISIN, SEDOL, NAME...)
- For the firm and market data, how many days should we use for the returns (the example shows around 800 days which is much more than the event and estimation period)?

Answer by Dr. Markus Schimmer:
The ID does not have to follow any specific convention. It must simply be unique as per each line. Hence, I recommend using simple/plain numbering. Regarding the amount of return data needed: You need as much as your event and estimation windows require. So if these windows are next to each other and stretch across 200 trading days, you'll need 202 closing prices as input data to calculate 200 returns. There is no harm when you include more data in your upload files - the tool will pick the required data sequence. You're correct in that our own sample files include more data than necessary... the reason is that we started off with a larger request file, trimmed it down, but did not adjust the firm and market data files.
Question #23: AR vs. AAR / CAR vs. CAAR

I have calculated the AR and CAR, as well as the AAR and CAAR. However, while understanding the different calculations behind these i am not sure when it is better to use AR or AAR, CAR or CAAR respectively. Could you explain what the differences are in terms of interpretation? When should which version be used for analysis? Are there different kind of 'significance' tests to be done to check these two different calculations?

Answer by Dr. Markus Schimmer:
The extra A in AAR and CAAR stands for average, meaning, it is the average of the ARs and CARs as per each sub-sample of your overall set of events. You define the sub-samples you want to apply in your analysis by using the "grouping variable" in the request file. In terms of interpretation, take the following example: You ran an analysis about differnt M&A types, let's say type 1 where the buyer paid in cash and type 2 where the buyer paid in stock. Consequently, you used as grouping variables "type 1" and "type 2". The ARs and CARs will give you insights on each and every single M&A transaction studied, whereas the AARs and CAARs will tell you about your two merger types in an aggregated manner. Yes, the test statistics differ. Please visit our test statistics page for details on how they are different.
Question #22: Importance of currency

I am conducting event study with different companies across Europe and all of them has different currency. Is it important in event study calculations to have the same currency for all companies in your sample? Or, as in the end we still get Returns, so currency is not significant?

Answer by Dr. Markus Schimmer:
I tend to agree with your assessment. Currencies shouldn't matter much since the analyses are performed based on returns. What matters, however, is market efficiency and if you're doing a multi-country study, market efficiencies may differ between countries - particularly if some are developed and others are emerging market countries. In your case, however, you should be fine.
Question #21: Event Study about rating changes

Dear Event study tools,

I am studying the rating changes effect on stock price, at the moment I use the market model to calculate the abnormal returns in the event window for each rating change for each company in the sample. I have this data but I don't understand how I can aggregate them into the Average abnormal returns and later into the CAAR, also I am a concerned about how to determine the standard deviation for T- test.

Many thanks in advance for your kind attention

Answer by Dr. Markus Schimmer:
You can use the grouping variable in our abnormal return calculator to get the AARs and CAARs as well as all associated test statistics calculated.
Question #20: 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 #19: 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 #18: 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

Pages