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Value of Latent Information: Alternative Event Study Methods
Author(s) -
ACHARYA SANKARSHAN
Publication year - 1993
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1993.tb04715.x
Subject(s) - econometrics , inference , event (particle physics) , event study , computer science , regression analysis , statistical inference , latent variable model , statistics , latent variable , mathematics , artificial intelligence , geography , context (archaeology) , physics , archaeology , quantum mechanics
This paper presents an econometric model to value latent information underlying corporate events. This model computes the market's inference of the value of latent information from the probability of an event, conditional on firm‐specific, preevent information. It provides a convenient framework for testing significance of preevent information variables, such as accounting attributes and lagged stock return. Simulations show that this model, when applied to both event and preevent period data, can decrease the incidence of bias in event studies. If restricted to only event period data, this model reduces to a truncated regression and does not perform as well as standard procedures.