HAC standard errors and the event study methodology: a cautionary note

George Ford, John Jackson and Sarah Skinner

Applied Economics Letters, 2010, vol. 17, issue 12, 1153-1156

Abstract: In support of Fomby and Murfin's (2005) article published in this journal, we demonstrate empirically, rather than theoretically, the severe consequences of using Heteroscedasticity and Autocorrelation Consistent (HAC) SEs in regression-based financial event studies. Applying an event study to a recent merger, we show that the use of HAC SEs render misleading conclusions. Critical values for t-tests on the event dummy variables are about 15 times larger than the nominal values using only a year of daily return data. Even with samples of only 100 returns, critical values exceed nominal critical values by a factor of 10.

Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.informaworld.com/openurl?genre=article& ... 40C6AD35DC6213A474B5 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:apeclt:v:17:y:2010:i:12:p:1153-1156

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEL20

DOI: 10.1080/17446540902817601

Access Statistics for this article

Applied Economics Letters is currently edited by Anita Phillips

More articles in Applied Economics Letters from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().