Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5085435 | International Review of Financial Analysis | 2007 | 20 Pages |
Abstract
Empirical results, in long-horizon event studies, are sensitive to whether equal- or value-weighting schemes are used to form event firm portfolios. In this paper we propose, as a first step, an evaluation of the economic value to investing in an equal-weighted and a value-weighted event firm portfolio prior to the event study. Using tests for mean-variance spanning we find in our data a significant improvement in an investor's investment opportunity set to investing in an equal-weighted portfolio. We then re-visit the long-run post-offer performance for rights issuers in the U.K. where we find, as in other studies, differences in both the magnitude and statistical significance of abnormal performance for value-weighted and equal-weighted event firm portfolios. We then use the results from our first step to provide an economic rationale for interpreting our results. A general conclusion we draw is that it may be useful to first ascertain, in long-horizon event studies, the economic value of portfolio weighting schemes as this can then provide some guidance to the use of a specific portfolio weighting scheme and thereby to interpretation of often conflicting results.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Abhay Abhyankar, Keng-Yu Ho,