Expert Dialog

Question #24: Cross-Sectional Test

Ich wüsste gerne woher bei der Erklärung des Cross-Sectional-Tests die Wurzel N vor dem Bruch kommt. Die leitet sich für mich nirgends heraus ab und ist auch unterschiedlich zu allen gängigen Artikeln über ein und dieselbe Signifikanztest-Art.

Answer by Dr. Simon Müller:
Das hängt mit der Definition des AAR/CAAR-Terms zusammen. In unserem Fall wird hier der Mittelwert gebildet, in anderen Papern (z.B. in der Beschreibung von Eventus) wird im Zähler die Summe verwendet.
Question #23: bARC Error: Empty Estimation Window was Extracted

My data has missing values of stock price for some dates in estimation window of some events, therefore bARC result give an error for those events "Empty estimation window were extracted". As I don't have stock price data of firms for those missing dates, is there any way to perform analysis successfully for those events.

Answer by Anton Levchenko:
bARC perfrorms analysis even if estimation window is shorter, than expected, but calculations for events with empty estimation window are senseless.You should complete data to perform analysis for such events correctly. Also you may set other parameters for estimation window of the event.
Question #22: Validation Rules for Input Data

I am currently working on my master thesis in Finance, for which I need to conduct an event study, to see the effects M&As have on the stock performance of these companies. However when uploading the CSV files I get: ''Unrecoverable error during Event Data import''. Without any explanations of what is going on? I have soms cells for which there was no data (for example not public yet or non existent at that time), I named these ''NA''. Does it have something to do with this?

Answer by Dr. Markus Schimmer:
Your file structure must conform with the file structure examplified in the sample files the website provides. Also, each variable/column has a distinct data type... so when a number is expected for a variable (e.g., closing price) you must not put text, such as NA.
Question #21: Validation Rules for Input Data

I am currently working on my master thesis in Finance, for which I need to conduct an event study, to see the effects M&As have on the stock performance of these companies. However when uploading the CSV files I get: ''Unrecoverable error during Event Data import''. Without any explanations of what is going on? I have soms cells for which there was no data (for example not public yet or non existent at that time), I named these ''NA''. Does it have something to do with this?

Answer by Dr. Markus Schimmer:
Your file structure must conform with the file structure examplified in the sample files the website provides. Also, each variable/column has a distinct data type... so when a number is expected for a variable (e.g., closing price) you must not put text, such as NA.
Question #20: bARC Error : Empty Estimation Window were Extracted

Dear Prof,

I got around 5000 events for around 700 firms in my data. When calculated bARC, results show only 1600 events successfully and for the remaining events following error was found in Analysis report folder.

"Event (Id: 980) calculations stopped due to reason: Empty estimation window were extracted. Event (Id: 981) calculations stopped due to reason: Empty estimation window were extracted" similar error for all remaining events.

Can you please any advice, why this error occurred.

Thanks for your kind cooperation

Best regards,
Imran haider

Answer by Anton Levchenko:
Hello, Imran,This error means your firm, or market data have gaps, and the software were unable to extract estimation window. It is a critical error, so calculations for the event 981 are skipped.Please check your input for the time period, mentioned in the event 981, and complete data, if needed.Best regards,Dr. A. Levchenko
Question #19: Seemingly Unrelated regression in event studies

I would like to perform an event study analysis with multiple events per company. The event type that I am about to examine is enforcement actions, thus I am faced with a dilemma. Since my firms have received several enforcement actions during the a 10-year time span without seasonal or calendar effects, meaning that a particular firm can receive an enforcement action in i.e, January 2010 and receive another enforcement action in September 2010 or another firm could receive an action in March 2007 and the next action in April 2014. Given that, I have several firms that receive actions in a very short period of time, thus if I will employ the market model my estimation window will contain another enforcement action of the same firm. So, my main question here is should I treat every firm's event as separate in my event study (i.e., let us assume that a firm has 5 events, should I treat each event separately?) or as I have during the estimation window other events of the same type (and of the same firm) should I use another approach as the one described in Binder (1985), the seemingly unrelated regressions?

Answer by Dr. Markus Schimmer:
You should definitely continue treating each event individually. Also, you should investigate whether the confounding of your estimation period is material. If you have a long time series of returns making up your estimation window, the enforcement action included may have a minor/negligable effect on your alphas and beta - if so, you should go ahead with the market model. Yes, using the approach presented by Binder (1985) may be an alternative route... but my assumption is that you can go with the market model.
Question #18: Patell t-stat comparison

I hope all is well. I am currently undertaking an event study methodology on a merger between two firms. I have followed your brilliant steps by using the market model and I am testing the null hypothesis that AR=0. My patell t-stat has come to -0.628714625. I am slightly confused about what I compare this value to in order to reject or accept my null hypothesis.

Answer by Dr. Simon Müller:
Your value of -0.6271 is a t statistic. As a rule of thumb a test is significant to the 5% level if the absolute value of t test statistic is greater than 1.96. If you want to calculate the exact critical value or the p-value, you may do it in your favourite statistic package or in Excel. Degree of Freedom = sample size - 2 (with market model).
Question #17: Degrees of freedom and Fama-French Three Factor Model

I was wondering as to how the formula for the standard deviation, the cross-sectional test (CAAR) and the Patell Z (CAAR) need to be adjusted if instead of the market model I would use a model with three factors and one constant?

Answer by Dr. Simon Müller:
The degree of freedom of a linear model is the number of observations (n) minus the number of independent variables (k) plus 1 (n - (k + 1)).
Question #16: short term event study

I am conducting a clinical event study on the IPO of Visa Inc and I was wondering how to adjust for thin trading in my alpha and beta estimates in the market model for calculating AR in the short term. I didn't understand the Scholes and Williams paper very well.

Answer by Dr. Simon Müller:
Our tool provides the Scholes/Wiliams model and it is free.
Question #15: short term event study

I am conducting a clinical event study on the IPO of Visa Inc and I was wondering how to adjust for thin trading in my alpha and beta estimates in the market model for calculating AR in the short term. I didn't understand the Scholes and Williams paper very well.

Answer by Dr. Simon Müller:
Dear Soheil, Our tool provides the Scholes/Wiliams model and it is free. Best, Simo

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