Event-Study Analysis

Michael Donadelli, Michele Costola and Ivan Gufler
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Michael Donadelli: University of Brescia
Michele Costola: Ca’ Foscari University of Venice
Ivan Gufler: Luiss Guido Carli

Chapter 9 in Essentials of Financial Economics, 2025, pp 223-243 from Springer

Abstract: Abstract What drives market fluctuations is not merely the events themselves but the human reactions to those events. This idea highlights a fundamental aspect of market dynamics: while events may serve as catalysts for market movements, it is often investor behavior that ultimately determines their magnitude and direction. Behavioral economics and finance strongly support this concept, emphasizing how emotions–such as fear and greed–can lead to significant overreactions or underreactions to news and developments. For instance, during a market downturn, panic selling can intensify declines far beyond what the initial trigger might justify. Conversely, during a market rally, excessive optimism can push prices well beyond their fundamental value. As a result, investor psychology and collective behavior create feedback loops that amplify market volatility, reinforcing the importance of understanding the emotional drivers behind financial markets.

Date: 2025
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DOI: 10.1007/978-3-031-86189-5_9

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