A Bayesian Approach to Event Studies for Securities Litigation

Jonah B. Gelbach and Jenny R. Hawkins

Journal of Institutional and Theoretical Economics (JITE), 2020, vol. 176, issue 1, 86-111

Abstract: We propose a Bayesian method for econometric event studies commonly usedin U.S. securities litigation. We show that our approach may be based on the Bayes factor, which has a simple form when inference is based on the empirical distribution function of abnormal returns; it also avoids problems related to nonnormality of abnormal returns. We use data from litigation related to alleged fraud by the Apollo Education Group (University of Phoenix's parent) to illustrate the method. Results are similar to frequentist hypothesis testing with a large event-date effect, but they can be importantly different with a small or moderate effect.

Keywords: Bayesian estimation; securities litigation; event studies; financial econometrics (search for similar items in EconPapers)
JEL-codes: C11 C12 C58 G14 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1628/jite-2020-0012

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