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The "Standard Error" of Event Studies: Lessons from the 2016 Election

Justin Wolfers () and Eric Zitzewitz ()

AEA Papers and Proceedings, 2018, vol. 108, 584-89

Abstract: The 2016 Election offers an unusually stark warning about the limitations of event studies. In four separate pre-election event windows, financial market responses to shifts in electoral probabilities were consistent with expectations that a surprise Trump win would lead the S&P 500 to fall by 11 percent. The initial decline that accompanied Trump's win was more than reversed on the day after the election, however, suggesting a reassessment of its expected effect. We discuss explanations for this reassessment. But our broader point is methodological: today's event study may not reveal tomorrow's market expectation.

JEL-codes: D72 G14 (search for similar items in EconPapers)
Date: 2018
Note: DOI: 10.1257/pandp.20181090
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