Valid Inference in Single Firm, Single Event Studies

Authors

Jonathan Klick, University of Pennsylvania Carey Law SchoolFollow
Jonah Gelbach
Eric Helland

ORCID

Jonathan Klick 0000-0003-1505-360X

Document Type

Article

Publication Date

10-1-2013

Abstract

Single-firm event studies play an important role in both scholarship and litigation despite the general invalidity of standard inference. We use a broad cross-section of 2000–2007 CRSP data and find that the standard approach performs poorly in terms of both Type I and Type II error rates. We discuss a simple-to-use alternative, the SQ test, based on sample quantiles of the empirical distribution of pre-event fitted excess returns, which has correct asymptotic Type I error rate. Results suggest that the test will be useful in studying the impact of firm-specific events such as regulation, anti-trust rulings, and corporate or securities litigation.

Publication Title

American Law & Economics Review

Repository Citation

15 Am. L. & Econ. Rev. 495 (2013)