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Long Run Stock Returns after Corporate Events Revisited

Hendrik Bessembinder () and Feng Zhang

Critical Finance Review, 2022, vol. 11, issue 1, 169-183

Abstract: Relying on simulation outcomes, Kolari, Pynnonen, and Tuncez criticize our choice to normalize firm characteristics while assessing returns after major corporate events in Bessembinder and Zhang (2013). However, their simulation outcomes simply verify that a non-linear normalization is inappropriate if the true relation is linear. The relation between log returns and firm characteristics is unknown, but is unlikely to be linear, as the distribution of firm characteristics is strongly skewed. Here, we report on bootstrap simulations that show our methods provide unbiased estimates with appropriate statistical size and high power to detect abnormal returns when implemented in actual data. Kolari, Pynnonen, and Tuncez also provide empirical estimates that comprise useful sensitivity tests. They largely confirm our conclusions with regard to secondary offerings, mergers and acquisitions, and dividend increases, but show that conclusions regarding initial public offerings depend on implementation choices.

Keywords: Long-run stock returns; Corporate events; Simulation; Normalization; Test power (search for similar items in EconPapers)
JEL-codes: G02 G14 (search for similar items in EconPapers)
Date: 2022
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