Tests for Abnormal Returns under Weak Cross Sectional Dependence

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Title: Tests for Abnormal Returns under Weak Cross Sectional Dependence
Author: Ahlgren, Niklas; Antell, Jan
Belongs to series: 561
ISSN: 2242-7082
ISBN: 978-952-232-175-6
Abstract: Tests for abnormal returns which are derived under the assumption of cross sectional independence are invalid if the abnormal returns are cross sectionally correlated. We model the cross sectional correlation by a spatial autoregressive model. The abnormal returns of .rms belonging to the same group according to their business activities are correlated, whereas the abnormal returns of .rms belonging to different groups are uncorrelated. Tests for abnormal returns corrected for cross sectional correlation are derived. An empirical application to US stock returns around Bear Stearns.collapse and Lehman Brothers.bankruptcy in 2008 is provided as an illustration. (JEL C21, C22, G12).
URI: http://hdl.handle.net/10138/34839
Date: 2012-06-28
Subject: abnormal return
cross sectional correlation
event study
spatial autoregressive model

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