Valid Inference in Single-Firm, Single-Event Studies

Jonah B. Gelbach, Eric Helland and Jonathan Klick

American Law and Economics Review, 2013, vol. 15, issue 2, 495-541

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. Copyright 2013, Oxford University Press.

Date: 2013
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