st: AW: RE: event study with Fama/French factors

[Schöler, Lisa <lschoeler@wiwi.uni-frankfurt.de>]

Dear Statalist,

Sorry, here is more information.

Basic idea of Event Study:
The event study (Fama et al. 1969) is one of the most widely used analytical tools in financial research. The basic assumption underlying the method is the efficient market hypothesis, which states that a stock price at a particular point in time fully reflects all available information up to that point (Sharpe 1964, Fama 1998). Thus, any change in the price of a stock because of arrival of new information reflects the present value of all expected current and future profits from that new information.

Basic idea of Fama/French
http://en.wikipedia.org/wiki/Fama%E2%80%93French_three-factor_model

Best Lisa

________________________________________
Von: owner-statalist@hsphsun2.harvard.edu [owner-statalist@hsphsun2.harvard.edu]" im Auftrag von "Martin Weiss [martin.weiss1@gmx.de]
Gesendet: Freitag, 13. August 2010 15:45
An: statalist@hsphsun2.harvard.edu
Betreff: st: RE: event study with Fama/French factors

<>

You must be hoping that there is some specialist longing to check your code
out there. He/she would have a hard time in the absence of detailed
information on your data/goals of analysis...

I am afraid this list has members from all kinds of academic disciplines, so
the least you have to provide is a citation for Fama/French, even though
among economists and business administrators it would not be necessary.


HTH
Martin

-----Original Message-----
From: owner-statalist@hsphsun2.harvard.edu
[mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of Schöler, Lisa
Sent: Freitag, 13. August 2010 13:45
To: statalist@hsphsun2.harvard.edu
Subject: st: event study with Fama/French factors

Dear Statalist,

I want to run an event study with stata using the Fama/French three factor
model to predict the expected return. I am not sure if the following comands
are correct for the expected return:

***ESTIMATING NORMAL PERFORMANCE***
set more off /* this command just keeps stata from pausing after each screen
of output */
gen predicted_return=.
egen id=group(group_id)
 /* for multiple event dates, use: egen id = group(group_id) */
forvalues i=1(1)219 { /*note: replace N with the highest value of id */
 l id group_id if id==`i' & dif==0
 reg ret market_return_minus_risk_free smb hml if id==`i' &
estimation_window==1
 predict p if id==`i'
 replace predicted_return = p if id==`i' & event_window==1
 drop p
}

Can anybody tell me if this is correct or if missed something?

Best
Lisa
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