Trading Frequency and Event Study Test Specification

Arnold Cowan () and Anne M.A. Sergeant
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Anne M.A. Sergeant: Iowa State University

Finance from University Library of Munich, Germany

Abstract: We examine the effects of thin trading on the specification of event study tests. Simu-lations of upper and lower tail tests are reported with and without variance increases on the event date across levels of trading volume. The traditional standardized test is mis-specified for thinly traded samples. If return variance is unlikely to increase, then Cor-rado’s rank test provides the best specification and power. With variance increases, the rank test is misspecificed. The Boehmer et al. standardized cross-sectional test is properly specified, but not powerful, for upper-tailed tests. Lower-tailed alternative hy-potheses can best be evaluated using the generalized sign test.

Keywords: event study research methods; trading volume; thin trading; nonparametric tests; Nasdaq (search for similar items in EconPapers)
JEL-codes: G14 (search for similar items in EconPapers)
Pages: 37 pages
Date: 1996-10-15
Note: Type of Document - Word 6.0/7.0; prepared on Windows; to print on PostScript; pages: 37. Forthcoming in Journal of Banking and Finance.
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Citations: View citations in EconPapers (54)

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Journal Article: Trading frequency and event study test specification (1996)
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