Investigating security-price performance in the presence of event-date uncertainty

Abstract

This paper introduces an event-study method that incorporates the possibility of a random event date. Consistent with empirical evidence, we assume an event may affect not only the conditional mean of a security's return, but also its conditional variance. We compare the statistical power and efficiency of our maximum-likelihood method with the standard application of traditional event-study methods to multiday security returns. Assuming a two-day event period, our empirical results provide evidence that the multiday approach is robust. We use our maximum-likelihood method to investigate the valuation effects of stock splits and stock dividends.