Review of Financial Studies Vol. 32 No. 1 2019
Characteristic-Based Benchmark Returns and Corporate Events
Abstract
We propose that fitted values from market-wide regressions of firm returns on lagged firm characteristics provide useful benchmarks for assessing whether average returns to certain stocks are abnormal. To illustrate, we study eight documented events with abnormal returns, including credit rating and analyst recommendation downgrades, initial and seasoned public equity offerings, mergers and acquisitions, dividend initiations, share repurchases, and stock splits. We show that the apparently abnormal returns in the months after these events are substantially reduced or eliminated when compared to characteristic-based benchmarks. Characteristic-based benchmarks perform better in explaining post-event returns than do recent four- and five-factor models. Received September 19, 2016; editorial decision February 16, 2018 by Editor Andrew Karolyi.
- DOI
- 10.1093/rfs/hhy037
- Volume
- 32
- Issue
- 1
- Pages
- 75-125
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref