Treating cross-dependence in event studies: the Canadian income trust leak

Kenneth Stewart and L. Zheng

Applied Financial Economics, 2011, vol. 21, issue 6, 369-377

Abstract: An alleged Canadian income trust announcement leak of 23 November 2005 provides a remarkable example of the sensitivity of event study analysis to the treatment of cross-sectional dependence in returns. Whereas a leak should chiefly have affected the returns on other securities, not income trusts, we find that a mechanical application of standard event study methodology yields the seemingly strong but spurious finding that income trust returns were affected. The treatment of cross-sectional dependence reverses this finding.

Date: 2011
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DOI: 10.1080/09603107.2010.532103

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