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Managerial Decisions and Long‐Term Stock Price Performance*
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Abstract(back to top)
A rapidly growing literature claims to reject the efficient market hypothesis by producing large estimates of long‐term abnormal returns following major corporate events. The preferred methodology in this literature is to calculate average multiyear buy‐and‐hold abnormal returns and conduct inferences via a bootstrapping procedure. We show that this methodology is severely flawed because it assumes independence of multiyear abnormal returns for event firms, producing test statistics that are up to four times too large. After accounting for the positive cross‐correlations of event‐firm abnormal returns, we find virtually no evidence of reliable abnormal performance for our samples.
Bibliographic Information(back to top)
- Managerial Decisions and Long‐Term Stock Price Performance
- Mark L. Mitchell and Erik Stafford
- The Journal of Business
- Vol. 73, No. 3 (July 2000) (pp. 287-329)
Notes and References(back to top)
This item contains 1 note(s).
Notes
* We thank Gregor Andrade, Reto Bachmann, Alon Brav, Ken French, Tim Loughran, Lisa Meulbroek, Jay Ritter, William Schwert (1997 American Finance Association discussant), Rene' Stulz, Luigi Zingales, and seminar participants at Duke, Harvard, Penn State, the University of Chicago, and Virginia Tech for helpful comments. We especially thank Eugene Fama for insightful comments and discussions. Mitchell thanks Merrill Lynch for a grant to study mergers and acquisitions. We both thank the Center for Research in Security Prices (CRSP) at the University of Chicago for financial support.
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