## Expert Dialog

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.

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?

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.

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.

Dear Soheil, Our tool provides the Scholes/Wiliams model and it is free. Best, Simo
Question #14: Aggregation across time and firms in Event Study

Dear Sir,
I intend to use event study methodology for the purpose of my research for accessing the impact of quarterly financial results and stock price behavior for a sample of firms .
Kindly help me to understand as to how the aggregation across time and firms is done for the sample.
Data for 30 stocks and 600 quarters.
In case of clarification on the query please let me know.

Regds,
Nayan

Dear Nayan,please visit out test statistic page. On the top of the page you will find the aggregation formulas.Best,Simon
Question #13: Training workshop online or onsite

I am writing to find out if you will offer any workshop so that I can have the opportunity to be trained using this important method for research purposes. If not, what is the best way to grasph this technically thoroughly?

Thank you very much for your help.

Best
Deli Yang

Dear Mrs. Yang,we do not provide online or onside tutorial at the moment. I may recommend you the excellent book: "Event Studies for Financial Research" from Kliger and Gurevich.Best,Simon
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?

Kind regards

Paolo

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?

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.