An Event Long-Short Index: Theory and Applications

Raymond Fisman and Eric Zitzewitz

American Economic Review: Insights, 2019, vol. 1, issue 3, 357-72

Abstract: We propose a stock market-based measure to capture initial beliefs about an event's effect on firm profits, which may be used to measure whether initial expectations are subsequently realized. Our "Event Long-Short Index" is the difference in market-capitalization-weighted returns of firms that outperform versus underperform the market on the event date. We use post-event index returns to measure whether initial beliefs are reinforced or attenuated. We apply our approach to the 2016 US presidential election and Brexit referendum to illustrate the index and its interpretation and to validate it, showing that it moves as expected following subsequent political and business news.

JEL-codes: D22 D72 D83 G14 L25 (search for similar items in EconPapers)
Date: 2019
Note: DOI: 10.1257/aeri.20180399
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Citations: View citations in EconPapers (17)

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