Expert Dialog

Question #12: CAR t-test

Dear Simon,

I'm a MSc student working on my final thesis. Could you please explain me why the denominator of the t-statistic for CAR is not divided by the square root of N?

Thank you in advance

Kind regards

Paolo

Answer by Dr. Simon Müller:
Hi Paolo,as we have in the nominator a sum and not a mean. Just try to calculate the expectation and variance of CAR_i, then you will see that CAR_i ~ N(0, L_2 sigma_i^2). As we estimate sigma_i^2 in the estimation window you get that CAR_i is t-distributed with M - 2 degrees of freedom (for the market model).Best,Simon
Question #11: Finding p-values

Hi!

How do you calculate the p-values? We use excel and look the t-statistic up in a normal distribution with a mean of 0 and a variance of 1 + cumulative = 0. Is that the right way to do so? And can we assume that all the test statistics should be looked up in a normal distribution and not a t-distribution?

Answer by Dr. Simon Müller:
Hi,on you test statistic page (http://www.eventstudytools.com/significance-tests) the brackets indicates which distribution to use for p value calculation, e.g. for the Patell test we have [4] Patell or Standardized Residual Test (Abbr.: Patell Z), so you use here z distribution (normal distribution with mean 0 and sd 1), a T indicates T distribution with degree of freedoms is depending on which model you use. Best, Simon
Question #10: IPO CAR

I'm trying to calculate Cumulative Abnormal Return for IPO firms after listing for 3 year trading period, by calculating monthly abnormal return and cumulating for the duration.

I went through the guides on CAR, but all of them cover event studies which include an estimation window. But as estimation windows is not available for IPO firms, I am confused how to calculate CAR. I have attached the formulas which I am considering to use.

Can you please help me to calculate CAR?

Answer by Dr. Simon Müller:
You may use the market adjusted model in your case. As our API uses an estimation window for calculating sigma it is not possible to solve your problem with our API. Best, Simon
Question #9: GRANK - T and GRANK - Z estimation

Hi, Firstly, I'm very impressed with the kind of event study calculation summary you have provided in your webpage. I have a question regarding the GRANK -T and GRANK - Z non parametric estimations. Are the GSAR ranked in ascending i.e. lowest rank for the lowest GSAR or vice versa descending order i.e. Highest rank for the lowest GSAR. I have checked other academic sources including Kolari and Pynnonen, (2011) but they don't seem to state it specifically. If I consider ranking in ascending order the T statistics are +ve for negative CAAR values whereas when ranked in decending order they are negative for -ve CAAR values. Looking forward to hear from you. Thanks for your time.

Regards,
John Pereira

Answer by Dr. Simon Müller:
Hello John Pereira,thank you for your question. This point is not really specified in the literatur of test statistics for event studies. In your question, you already answered it yourself. For consistency reasons (from a paractical view), it would be plausible to have a positive t statistic if the GSAR of the cumulative event day belongs to the top 50% in this sequence, vice versa. Theoretically, it does not matter if you order them in the ascending or descending way, the absolute t-value will be in both cases the same, just the sign changes (as you already noted).Best,Simon 
Question #8: Can we conduct event study using SPSS

Dear Sir,
I am doing my Ph.D research, where I require to conduct event study (here event study is to be conducted by combining on multiple events)
Events are identified in the data series (both upper tails and lower tails)
Can it be possible to conduct this type of event study by using SPSS?
Kindly help me in this regard.

Answer by Dr. Simon Müller:
Hello,It should be possible with some programming to conduct this type of event studies in SPSS. Best
Question #7: Calculation of Average AR and CAR

I don´t understand how I calculate average AR and CAR. I have 88 companies and 563 events. Do I need to divide AR by N events (563) or by N companies (88)? For example, event 1, is AAR=0,45629/563=0.00081046. What ist he right way to calculate AAR and ACAR? I would be very happy, if you can help me!
day abnormal_return cumulative_abnormal_return
-5 0.45629 2.65503
-4 -0.09955 2.65503
-3 0.41327 2.65503
-2 -0.16353 2.65503
-1 -0.01421 2.65503
0 0.56482 2.65503
1 -0.19816 2.65503
2 1.96007 2.65503
3 0.11497 2.65503
4 0.2138 2.65503
5 -0.59274 2.65503

Answer by Dr. Markus Schimmer:
Yes, AAR and CAAR are mean averages of the respective AR and CAR values as described here: http://www.eventstudytools.com/event-study-methodology. The event study engine of this website will calculate the AAR and CAAR values for you.
Question #6: Calculation of Average AR and CAR

I don´t understand how I calculate average AR and CAR. I have 88 companies and 563 events. Do I need to divide AR by N events (563) or by N companies (88)? For example, event 1, is AAR=0,45629/563=0.00081046. What ist he right way to calculate AAR and ACAR? I would be very happy, if you can help me!
day abnormal_return cumulative_abnormal_return
-5 0.45629 2.65503
-4 -0.09955 2.65503
-3 0.41327 2.65503
-2 -0.16353 2.65503
-1 -0.01421 2.65503
0 0.56482 2.65503
1 -0.19816 2.65503
2 1.96007 2.65503
3 0.11497 2.65503
4 0.2138 2.65503
5 -0.59274 2.65503

Answer by Dr. Simon Müller:
Hello,your problem describtion is not precise. What is the source of this value -5 0.45629? Is this the AR of a single firm or the AAR of your firms? What do you want to analyse?Best
Question #5: Enquiry about t-test on CAR

Dear Dr.

Sorry to bother you. I am a Chinese student and I am doing my MSC dissertation. I am conducting an event study in order to figure out the influence of the release of movies. I feel confused about the way to test CAR. I am wondering can I calculate SD (CAR) directly through the STDEV formula in Excel? Further,I am not sure whether the "N"in the formula you provide to calculate standard deviation of AAR also stand for the number of events. Could you please give me some help? Thank you very much.

Have nice day!

ENQI

Answer by Dr. Simon Müller:
Hello,As you have N observations with one event each, you can regard N also as the number of events. The standard deviation of CAR is the length of the event window multiplied with the standard deviation of of the abnormal returns in estimation window. The AR in the estimation window can be calculated by the EXCEL function STDEV.Best,Simon
Question #4: Incorrect calculation of Alpha and Beta

Dear Sir,

I believe that the way Alpha and Beta is calculated in the Basis Abnormal Return tool of your website is incorrect. The formula for Alpha should be as follows: Intercept(stock return of firm. return on index) while the ES with excel file that has been provided to give evidence that the results of your event study methodology tool are correct uses Intercept(return on index, stock return of firm). Same goes for Beta.

Could you please clarify this issue.

I hope to hear from you soon.

Khurram Shahzad, PhD.

Answer by Dr. Simon Müller:
Dear Mr. Shahzad,Your right. For calculating abnormal returns you use the return of index as independent variable and the return of firm as dependent variable. I corrected the Excel file on http://www.eventstudytools.com/excel. The abnormal return calculation on the significance site were correct.Best,Simon
Question #3: Calculating the alpha and beta parameters.

How to i calculate the beta and alpha parameters in my market model.

Answer by Dr. Simon Müller:
You get the alpha and beta parameter of the market model by doing a linear regression on the data in the estimation window. You can do that analysis e.g. with our App.Best,Simon

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