Lessons from Single-Company Event Studies : The Importance of Controlling for Company-Specific Events

Single-company event studies are commonly employed in applied practice, such as in analyzing market efficiency, reliance, and damages in securities litigation. However, the presence of significant company-specific events among the observations used to estimate the market model results in significantly biased, overstated standard errors (a well-known omitted variables problem) and less reliable coefficient estimates in such studies. This is a frequently over-looked or neglected issue that renders the statistical inferences in single-company event studies employing more traditional event study techniques biased and often unreliable. This paper demonstrates through simulation and actual examples that, even allowing for errors in implementation, intervention analysis (identifying and controlling for all identified company-specific events) substantially improves the reliability of the coefficient estimates and reduces the biases (resulting in substantially more correct statistical inferences, greater power) in single-company event study analyses