A hedge portfolio long (short) in low (high) accrual firms consisting of only small firms earns an insignificant
abnormal return, averaging 10.7 percent, which is not significantly different from the 7.1 and 8.1 percent hedge portfolio returns of large firms and medium-sized firms, respectively.
where [mathematical expression not reproducible] is the cumulative
abnormal return of share i during the event window [[[tau].sub.1]; [[tau].sub.2]], [R.sub.i,t] is the realized return of stock i on day t (1), [R.sub.M,t] is the return of the benchmark index of sector i, [[??].sub.i] and [[??].sub.i] are the regression estimates from an ordinary least squares (OLS) regression for 105 trading day estimation period until t = -10.
They construct portfolios of firms that had few textual changes in quarter-to-quarter reports and firms that had many changes, and find that portfolios that were long "non-changers" and short "changers" earned a statistically significant value-weighted
abnormal return of between 34 and 58 basis points per month--between 4 and 7 percent per year--over the following year.
Table 3 presents
abnormal returns over various event windows using the market-adjusted returns method (Brown and Warner, 1985), which is the daily
abnormal return calculated as the firm-specific return minus the CRSP value-weighted market return.
As a result, we are able to speculate that the
abnormal return was due to the event, i.e., the IOC announcement increased or decreased the future profitability of companies in those countries.
The difference between the actual return and the expected return on a given period is the
abnormal return.
The dependent variable is the cumulative average
abnormal return (CAAR) surrounding the date of each announcement in the sample.
Based on the market model, abnormal monthly returns were calculated using both the buy-and-hold return and cumulative
abnormal return methods for each firm.
Cumulative average
abnormal return in three day window period surrounding the date of recommendation is 1.41 per cent and they further observed that these returns increase gradually from 3 to 4 days prior and reach a peak return on the date of recommendation.
(9.) The t-statistics that measure whether the Cumulative
Abnormal Return is significantly different from zero over the event period window (t = l to t = k) are calculated using the dependence adjustment method as described by Brown and Warner (1985), with a holdout period from r = -30 to [??] is the variance of the
abnormal return computed over the holdout period, M is the number of days in the event period, and A[R.sub.t] is the
abnormal return on day t.
The
abnormal return of stock i on day t is the empirical difference between the observed return and the expected return during the event window: