Applications of event study methodology for measuring of a market reaction

Ing. Munkh-Od Dashdondog

Master's thesis

Abstract:

This thesis aims to provide an empirical analysis of the market reaction from information about addition and deletion to/from the S&P 500 under an efficient market hypothesis. In that way, event study methodology is used to detect abnormal returns and three different test statistics: t-test, Patell Z test, and Generalized sign tests to check H0: AR=0 null hypothesis. Abnormal returns are defined as a difference between an actual return and a normal return, which Market Model determines. In this thesis, daily return data of 50 added and 29 deleted to/from S&P 500 index stocks during the period between 2018 and 2020 were analyzed. Based on test statistics, abnormal returns, average abnormal returns, and cumulative abnormal returns are significant in different event windows for added and deleted stocks. For added assets, the Abnormal Returns were significant in post-event dates, while for the excluded shares, the Abnormal Returns were significant pre-event dates.

Abstract:

This thesis aims to provide an empirical analysis of the market reaction from information about addition and deletion to/from the S&P 500 under an efficient market hypothesis. In that way, event study methodology is used to detect abnormal returns and three different test statistics: t-test, Patell Z test, and Generalized sign tests to check H0: AR=0 null hypothesis. Abnormal returns are defined as a difference between an actual return and a normal return, which Market Model determines. In this thesis, daily return data of 50 added and 29 deleted to/from S&P 500 index stocks during the period between 2018 and 2020 were analyzed. Based on test statistics, abnormal returns, average abnormal returns, and cumulative abnormal returns are significant in different event windows for added and deleted stocks. For added assets, the Abnormal Returns were significant in post-event dates, while for the excluded shares, the Abnormal Returns were significant pre-event dates.

Keywords

Efficient Market Hypothesis, Event study methodology, S&, P 500 index, Market Model, Abnormal Return, Announcement

Language used: English

Date on which the thesis was submitted / produced: 14. 5. 2021

Thesis defence

• Date of defence: 24. 6. 2021
• Supervisor: Ing. Dagmar Vágnerová Linnertová, Ph.D.
• Reader: Ing. Tomáš Plíhal, Ph.D.

Masaryk University

Faculty of Economics and Administration

Master programme / field:
Finance / Finance