Dear All,
I’m conducting and event study for inclusion of companies in a certain index.
The event is the “inclusion event” for companies in this index for last 5 years.
For the events, we have yearly Announcement date (AD) for inclusions, and also effective Change Dates (CD) for the inclusion in the index.
Within same year, I have aligned all companies together on (AD) as day 0, and since they are companies from same year, CD will also align for all of them.
The problem comes when I try to aggregate companies from different years together, although I aligned them all to have same AD, but CD is different from one year to another so CD don’t align for companies from different years.
How can I overcome this misalignment of CD from different years , so that I’m able to aggregate all the companies together?
Many Thanks.
Good afternoon!
In general, for me your approach is somewhat strange. Maybe I misunderstood something, but an event as a sign of classification is not statistically measurable. In addition, there is clustering - that is, a layering of events. In addition, the reactions themselves in time and changing conditions will be different.
You can see my work. If there is time and desire. I have an event base that I use as a training sample in forecasting the dynamics of the stock market.
Regards prof. Malyshekn K.A.
Dear Ahmed
Not quite sure the objective of your research; I think it is to see the effect when an investment (e.g. stock) is included in an index.You state time in days and years but it appears you are focusing on yearly data. As mention in the earlier answer you will introduce a clustering effect that will distort your results. It is ideal to keep to time in days. Daily prices/returns should be readily available. If this is the aim of your research here is some relevant literature:
Article What Drives the S&P 500 Inclusion Effect? An Analytical Survey
https://www.tandfonline.com/doi/abs/10.2469/faj.v43.n1.58?journalCode=ufaj20
https://www.jstor.org/stable/40473416?seq=1
https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1540-6261.2004.00683.x
Article The Liquidity Effects of Revisions to the S&P 500 Index: An ...
Dear Prof. Raymond,
Thank you for your answer.
My aim is to see if there are abnormal returns (AR) for stock due to their joining of certain index for the past 3 years.
To my understanding, in event study methodology (market model), we align announcement date (AD) for all stocks from the 3 years, then we calculate daily average abnormal returns from all years (AAR) at (AD) and other days.
But this alignment of (AD) leads to misalignment of Change dates (CD) from different years.
So how can we calculate (AAR) at (CD)s? to include AD and CD in out analysis?
Maybe I have a misunderstanding about something in the procedures.
I have illustrated what I mean also graphically in the attached file for your kind reference.
What do you think?
Dear Ahmed
Would you please give an example of the event that is the announcement (AD)? Also, please give an example/event that triggers the change date (CD)? Note, stock alphas and betas change over time. Calculating AAR for an extended period such as 3 years will most likely not generate strong results. See:
Article Beta Estimation and Stability in the US-Listed International...
Dear Prof. Raymond,
My aim is to see what happens to returns of stocks when they join a certain stock exchange index, do they generate abnormal returns?
I’m trying to study that for the last 3 years.
So the event is “joining the index” which happens with 2 dates (1) announcement date (AD), on which stock exchange announces the news of those stocks will join the index, and (2) change date (CD), which is the date for really including those stocks in the index, this CD is is decided and announced by the stock exchange during the AD.
I have attached a similar work for your kind reference.
Thanks for your reply.
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