Graphical Analysis for Event Study Design

This paper describes a graphical procedure that was used to select the length and placement of the announcement period, the number of securities in the comparison portfolio, and the length of the comparison period for an event study involving over 16,000 earnings announcements. The literature does not suggest a single “best” methodological approach for an event study. Plotting information content as the dependent variable and placement of the announcement period as the independent variable, the procedure produced families of nested curves, one set for each combination of parameters being tested. Interpretation of the plots is based on the general notion that the optimal combination of parameters will produce a plot with high amplitude and sharp increases and decreases as the announcement period placement approaches, passes through, and moves away from the optimal placement. The analysis led to the selection of an announcement period of ten days (announcement date plus seven days prior and two days following), a comparison period of 30 days, and a comparison portfolio of ten securities