The Specification and Power of the Sign Test in Event Study Hypothesis Tests Using Daily Stock Returns

Charles Corrado and Terry L. Zivney

Journal of Financial and Quantitative Analysis, 1992, vol. 27, issue 3, 465-478

Abstract: This paper evaluates a nonparametric sign test for abnormal security price performance in event studies. The sign test statistic examined here does not require a symmetrical distribution of security excess returns for correct specification. Sign test performance is compared to a parametric t-test and a nonparametric rank test. Simulations with daily security return data show that the sign test is better specified under the null hypothesis and often more powerful under the alternative hypothesis than a t-test. The performance of the sign test is dominated by the performance of a rank test, however, indicating that the rank test is preferable to the sign test in obtaining nonparametric inferences concerning abnormal security price performance in event studies.

Date: 1992
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