How Eventful are Event Studies?

Abstract

This paper reexamines the event study methodology in finance. We consider a formal specification of an event study in terms of a system of abnormal returns and, in particular, emphasise the possible limitations of using a methodology when misspecification may be present. In the first section of the paper, the theory of the event study is reviewed, with reference to the definition problems associated with the measurement of abnormal returns, the conditional information set embedded in return expectations, the determination of the event window, and the similarity across events. A major insight of our paper is to emphasise the importance of conditionality, learning and convergence in the theory..