Critical Finance Review > Vol 11 > Issue 1

Long Run Stock Returns after Corporate Events Revisited

Hendrik Bessembinder, W.P. Carey School of Business, USA AND Arizona State University, USA, hb@asu.edu , Feng Zhang, Cox School of Business, Southern Methodist University, USA, fengzhang@smu.edu
 
Suggested Citation
Hendrik Bessembinder and Feng Zhang (2022), "Long Run Stock Returns after Corporate Events Revisited", Critical Finance Review: Vol. 11: No. 1, pp 169-183. http://dx.doi.org/10.1561/104.00000070

Publication Date: 21 Feb 2022
© 2022 Hendrik Bessembinder and Feng Zhang
 
Subjects
 
Keywords
G14G02
Long-run stock returnsCorporate eventsSimulationNormalizationTest power
 

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In this article:
1. Introduction 
2. Relevant Simulation Evidence 
3. Robustness and Interpretation of Results Reported by KPT 
4. Conclusions 
References 

Abstract

Relying on simulation outcomes, Kolari, Pynnonen, and Tuncez criticize our choice to normalize firm characteristics while assessing returns after major corporate events in Bessembinder and Zhang (2013). However, their simulation outcomes simply verify that a non-linear normalization is inappropriate if the true relation is linear. The relation between log returns and firm characteristics is unknown, but is unlikely to be linear, as the distribution of firm characteristics is strongly skewed. Here, we report on bootstrap simulations that show our methods provide unbiased estimates with appropriate statistical size and high power to detect abnormal returns when implemented in actual data. Kolari, Pynnonen, and Tuncez also provide empirical estimates that comprise useful sensitivity tests. They largely confirm our conclusions with regard to secondary offerings, mergers and acquisitions, and dividend increases, but show that conclusions regarding initial public offerings depend on implementation choices.

DOI:10.1561/104.00000070