Hostname: page-component-77c89778f8-swr86 Total loading time: 0 Render date: 2024-07-24T05:26:18.008Z Has data issue: false hasContentIssue false
  • English
  • Français

The Influence of Market Conditions on Event-Study Residuals

Published online by Cambridge University Press:  06 April 2009

April Klein  and
James Rosenfeld
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper presents evidence that the mean-adjusted returns and raw-market returns models are misspecified when the event under investigation occurs during either bull or bear markets. To demonstrate this phenomenon, simulation techniques as well as an actual event are employed to examine the reliability of four different return-generating models. When the event occurs during a bull (bear) market, both the mean-adjusted and raw-market returns models produce upwardly (downwardly) biased positive (negative) abnormal returns. This results in statistically significant cumulative abnormal returns over selected preevent and postevent intervals. In contrast, both the market-adjusted and single-index models show far less evidence of any unusual price activity over these same intervals.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 22 , Issue 3 , September 1987 , pp. 345 - 351
Copyright
Copyright © School of Business Administration, University of Washington 1987

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

[1]Alexander, G.; Benson, G.; and Kampmeyer, J.. “Investigating the Valuation Effects of Announcement of Voluntary Divestitures.’ Journal of Finance, 39 (06 1984), 503–517.CrossRefGoogle Scholar
[2]Alexander, G., and Stover, R.. “Consistency of Mutual Fund Performance during Varying Market Conditions.’ Journal of Economics and Business, 32 (Spring 1980), 219–225.Google Scholar
[3]Brown, S., and Warner, J.. “Measuring Security Price Performance.” Journal of Financial Economics, 8 (06 1980), 205–258.Google Scholar
[4]Brown, S., and Warner, J.. “Using Daily Stock Returns in Event Studies.” Journal of Financial Economics, 14 (03 1985), 3–32.Google Scholar
[5]Cohen, J.; Zinberg, E.; and Zeikel, A.. Investment Analysis and Portfolio Management. 4th ed.Homewood, IL: Richard D. Irwin, Inc. (1979).Google Scholar
[6]Fabozzi, F. J., and Francis, J. C.. “Stability Tests for Alphas and Betas over Bull and Bear Market Conditions.” Journal of Finance, 32 (09 1977), 1093–1099.Google Scholar
[7]Francis, J. C.Investments: Analysis and Management. 4th ed.NY: McGraw Hill, Inc. (1986).Google Scholar
[8]Goldberg, M. A., and Vora, A.. “The Inconsistency of the Relationship between Security and Market Returns.’ Journal of Economics and Business, 33 (Winter 1981), 97–107.Google Scholar
[9]Hearth, D., and Zaima, J. K.. “Voluntary Corporate Divestitures and Value.” Financial Management, 13 (Spring 1984), 10–16.CrossRefGoogle Scholar
[10]Hite, G., and Owers, J.. “Corporate Asset Divestitures: Implications for Buyers and Sellers.” Working paper, Southern Methodist Univ. and the Univ. of Massachusetts (1984).Google Scholar
[11]Jain, P. C. “The Effect of Voluntary Sell-Off Announcements on Shareholder Wealth.” Journal of Finance, 40 (03 1985), 209–224.Google Scholar
[12]Klein, A. “The Timing and Substance of Divestiture Announcements: Individual, Simultaneous and Cumulative Effects.” Journal of Finance, 41 (07 1986), 685–695.Google Scholar
[13]Linn, S., and Rozeff, M. S.. “The Effect of Voluntary Divestitures on Stock Prices: Sales of Subsidiaries.” Working paper, Univ. of Iowa (1984).Google Scholar
[14]Rosenfeld, J. D. “Additional Evidence on the Relation between Divestiture Announcements and Shareholder Wealth.” Journal of Finance, 39 (12 1984), 1437–1448.Google Scholar