For this assignment, you need to have access to WRDS (Wharton Research Data Services).
Event Study on Announcement of corporate Guidance information
Corporate officials (CEOs, CFOs) release forward-looking information that provides analysts and shareholders with insight regarding a company’s expected revenue, earnings, and operational goals in the time periods ahead. This corporate guidance information can be positive (raised guidance) or negative (lowered guidance). The corporate guidance information, also called forward-looking statements, is usually given in conference calls and then reported in the financial press.
In this event study, we examine the impact of these announcements on the stock market. We expect a positive (negative) impact on the stock market if the corporate officials raise (lower) the guidance information of the company.
Hypothesis (lowered guidance):
The announcement of lowered guidance information will have a negative impact on the stock market.
Hypothesis (raised guidance):
The announcement of raised guidance information will have a positive impact on the stock market.
How do we measure positive and negative impacts on the stock market? To measure the impact on the stock market, we will estimate abnormal returns. To measure abnormal returns, we will use the market-adjusted model.
Abnormal Returns (Market-adjusted Model):
Average Abnormal Returns:
Cumulative Average Abnormal Returns:
Assignment:
You must write a research report on the impact of corporate guidance news releases on the stock market.
You have some choices in WRDS:
- Choose between raised or lowered guidance information
- Select a country of your choice
- Select a period (at least 10 years), for example 2010-2022.
Instructions: Only need to do one
1. International Event Study: Analytics/International Event Study/Events from Capital IQ
Step 1: 2010-01-01 to 2020-12-31 or other period
Step 2: Country
Step 3: Corporate Guidance – Lowered/Raised
Step 4: Keep provided parameters -10, +10 days
Step 5: Select EVTDATE, EVTTIME, ABRET
Step 6: Output format, select Excel
Submit Form, click on the query (green) at the top of your screen
Download: files with charts.html, and xlsx (ignore stats and edate file)
2. US Event Study: Analytics/US Daily Event Study/Events from Capital IQ- This is the one I’m doing
Step 1: select period of your choice
Step 2: Corporate Guidance – Lowered/Raised: Raised
Step 3: Market-Adjusted Model
Step 4: Keep provided parameters; Event Window Start and End: -10, +10 days
Step 5: Select MODEL, EVTDATE, EVTTIME, ABRET
Step 6: Output format, select Excel
Submit Form, click on the query (green) at the top of your screen
Download: files with charts.html, and xlsx (ignore stats and edate file)
Common instructions:
- Upload Figure 1 (charts.html file) in Words and explain the shape of the curve.
- Open xlsx file in excel, select the entire worksheet, select INSERT/PIVOT TABLE (new worksheet)
- Pivot Table:
Rows: Permno with original user provided event date
Columns: Event Time (Relative to the Event Date t=0)
Values: Abnormal return
Now you copy and paste special (Values) in new worksheet
Now you got for each relative day (-10,+10) the Abnormal Returns (AR). To get the Average Abnormal Returns (AAR) for each day, you have to calculate the average (insert formula at the bottom of the columns, remove first Grand total!) and show the values in percentage)
The Cumulative Average Abnormal Returns (CAAR) is: This is what I need help with, I’m not sure how to calculate CAAR
CAAR(-10) =AAR(-10)
CAAR(-9) =AAR(-9) + CAAR(-10)
CAAR [-10,-1] = sum of AAR over the period -10 to -1
CAAR [-10,+10] = sum of AAR over the period -10 to +10
- Prepare the following Tables:
Table 1: Daily Average Abnormal Returns (AAR) using the Market-Adjusted Model
| Event Day | AAR |
| -10 | |
| -9 | |
| -8 | |
| -7 | |
| -6 | |
| -5 | |
| -4 | |
| -3 | |
| -2 | |
| -1 | |
| 0 | |
| +1 | |
| +2 | |
| +3 | |
| +4 | |
| +5 | |
| +6 | |
| +7 | |
| +8 | |
| +9 | |
| +10 |
Table 2: Cumulative Average Abnormal Returns (CAAR) using the Market Model
| Event Window | CAAR |
| Total event window [-10,+10] | |
| Pre-announcement period [-10,-1] | |
| Announcement day [0] | |
| Post-announcement period [+1,+10] |
I have the original data file and pivot table. When I tried to copy and paste it the site stops working. If someone has an idea of how I can post it let me know.
Thank You
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