Event Studies

Event Study

A study to determine what effect the release of information or its timing has on a security's price. Most analysts believe that information should be released in portions so that the market can price out good or bad information and reduce volatility. However, followers of the efficient markets hypothesis argue that doing that is unnecessary because information is reflected in the security's price immediately. Event studies help shed light on which school, if either, is correct; as with anything, there is the potential for bias within the study itself.

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event studies

Research that attempts to determine if particular events produce abnormal returns from stock investments. For example, researchers have conducted event studies in an attempt to determine if stock splits, dividend increases, and earnings announcements produce abnormal returns.