Does the market model provide a good counterfactual for event studies in finance?

Carlos Castro ()

No 15894, Documentos de Trabajo from Universidad del Rosario

Abstract: We provide a common framework that relates traditional event study estimation methods in finance with a modern approach for causal event studies. This framework is called synthetic portfolio and is a particular case of synthetic control methods. We provide a simulation exercise and an empirical application to evaluate the performance of the method. In addition, synthetic control methods provides a reliable framework, for test based on the abnormal returns, that overcomes some difficulties in the traditional test. We conclude that the market model provides a counterfactual as good as a synthetic control.

Keywords: Event studies; synthetic control methods; portfoliooptimization; merger announcements. (search for similar items in EconPapers)
JEL-codes: C13 G11 G34 (search for similar items in EconPapers)
Pages: 30
Date: 2017-12-04
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:col:000092:015894

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