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Event Study

What is an Event Study


Using financial market data, an event
study measures the impact of a specific
event on the value of a firm
Examples include M&As, earnings
announcements, capital issues, macro
news announcements, index changes,
and other corporate and market actions

Steps of an Event Study


1. Identify an event and create an
Input File
2. Execute the WRDS Query
3. Analyze the data

Step One: the Input File


The input file specifies the date of an
event, and the identifier of the company
to analyze on those dates.
Input file may include multiple companies
and multiple event dates for one type of
event.
For this example, we will create an input
file of major corporate data breaches,
along with the date that the breach
became public.

Data Breach Event


Information
Company

Ticker

Date

People
Affected

eBay

EBAY

2014-05-21

145,000,000

Heartland

HPY

2009-01-20

130,000,000

Target

TGT

2013-12-13

110,000,000

Sony

SNE

2011-04-20

102,000,00

JP Morgan Chase

JPM

2014-10-02

83,000,000

Anthem

ANTM

2015-02-04

80,000,000

Epsilon

ADS

2011-04-01

60,000,000

Home Depot

HD

2014-09-02

56,000,000

TJ Maxx

TJX

2007-02-21

46,000,000

Adobe

ADBE

2013-10-03

38,000,000

Input Text File Example


EBAY 20140521
HPY 20090120
TGT 20131219
SNE 20110420
JPM 20141002

Step Two: Running the


Query

Log into WRDS, then go to


Home -> WRDS Event Study Suite

Running a query on WRDS involves five steps:


1. Upload the Event File
2. Select the Risk Model
3. Set Estimation Parameters
4. Select the data variables to extract
5. Run the query!

WRDS Query, Step 1


Specify the format of the Identifiers

Specify the format of the


dates
Upload your input file

WRDS Query, Step 2

There are several different risk models


which you can use. Click on the Name for
details. For now, you will leave it on the
default.

Risk Models
The Market-Adjusted Model uses abnormal
returns defined in excess of the CRSP
Value-weighted market return (assumes
market beta of 1 or E(R)=RM(t)).

Risk Models
The Market Model uses abnormal returns
defined according to the Capital Asset
Pricing Model (CAPM):

Risk Models
Fama-French Three-Factor Model uses
abnormal returns defined with respect to
Fama-French 3-factor model:

Risk Models
Fama-French Plus Momentum model uses
abnormal returns defined with respect to
Carhart (1997) model:

WRDS Query, Step 3:

There are several estimation parameters


you can set for the study. For now, leave
them at the defaults.

WRDS Query, Step 4


The Variables
step is where
you can
specify the
data that you
want to be
output.
Again, leave
the preselected
items as
defaults.

WRDS Query, Step 5

Leave the Output format and


Compression Type
unchanged.
Click Submit Query to run

Step Three: Analysis of


the Data
Lets start by looking at the graphical
results of the Event Study.
The top graph shows the mean of
Cumulative Abnormal Returns (simple
average of the cumulative abnormal
returns)

For example: a graph of the mean


Cumulative Abnormal Return like the
one above would indicate a positive,
one-time impact of the event on the
stock price. If no event had occurred,
the line would stay near to 0.

Conversely, a graph of the mean CAR


like this would indicate a negative, onetime impact of the event on the stock
price.

A graph of the mean CAR like this would


indicate that news of the event may have
preceded the event date, prematurely
impacting the stock price in a positive direction.

Event Study Results

Daily abnormal
returns for each
security during its
event window

Daily Abnormal Returns


Event
Date

Day offset from event


date

Abnormal

Event Study Results

Buy-Hold
Abnormal Returns
(BHAR)

Company Abnormal
Returns
Event
Date

BHAR values are buy-hold abnormal


returns, which is the return for owning the
stock over the holding period. HPY shows
the largest decline.

Event Study Results

Summary Statistics

Daily Abnormal Returns


PAT_AR
represents
the Patell
(1976) tstatistic
measuring
the
statistical
significance
of mean
daily
abnormal

Event Study Results

Graphical
Output

Cumulative Average Abnormal


Return and 95% Confidence Limits

Mean CARs Graph


Observations
Observation 1: The
mean Cumulative
Abnormal returns
for all companies
drops by about 5%.
This suggests an
impact of the event
on the returns.

Observation 2: The dotted lines above and


below the solid return line represent a
plus/minus 2-standard deviation confidence
interval.

How to Get Help:


For a more detailed discussion of the
Event Study algorithm:
https
://wrds-web.wharton.upenn.edu/wrds/resear
ch/applications/event/run/
index.cfm
For all questions, you can email:
wrds-support@wharton.upenn.edu

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