Decomposing Excess Returns in Stochastic Linear Models

Carl Lin

No 6237, IZA Discussion Papers from IZA Network @ LISER

Abstract: We present a theorem helpful in estimating the mean and variance of a linear function with arbitrary multivariate randomness in its coefficients and variables. We derive a generalized decomposition result from two random linear functions in which the result can be applied to most models using event study analysis. Taking the 1989 minimum wage hike as an example, we found that the apparent lack of an effect is a consequence of two off-setting forces: 1) a negative effect arising from firm-specific traits and 2) a positive effect arising from market performance. In sum, we bring to the analysis a method that helps provide additional insights and can be applied to much of the work using event study.

Keywords: event study; decomposition; minimum wage; excess returns (search for similar items in EconPapers)
JEL-codes: G14 J31 J38 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2011-12
New Economics Papers: this item is included in nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published - revised version published in: Economics Letters, 2013, 118(1), 143-147

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