Valid Inference in Single-Firm, Single-Event Studies

Published in: American Law and Economics Review, Volume 15, Issue 2, pages 495–541 (Fall 2013). doi: 10.1093/aler/aht009

Posted on on December 11, 2020

by Jonah Gelbach, Eric Helland, Jonathan Klick

Read More

Access further information on this document at American Law and Economics Review

This article was published outside of RAND. The full text of the article can be found at the link above.

Single-firm event studies play an important role in both scholarship and litigation despite the general invalidity of standard inference. We use a broad cross-section of 2000–2007 CRSP data and find that the standard approach performs poorly in terms of both Type I and Type II error rates. We discuss a simple-to-use alternative, the SQ test, based on sample quantiles of the empirical distribution of pre-event fitted excess returns, which has correct asymptotic Type I error rate. Results suggest that the test will be useful in studying the impact of firm-specific events such as regulation, anti-trust rulings, and corporate or securities litigation.

Research conducted by

This report is part of the RAND Corporation External publication series. Many RAND studies are published in peer-reviewed scholarly journals, as chapters in commercial books, or as documents published by other organizations.

Our mission to help improve policy and decisionmaking through research and analysis is enabled through our core values of quality and objectivity and our unwavering commitment to the highest level of integrity and ethical behavior. To help ensure our research and analysis are rigorous, objective, and nonpartisan, we subject our research publications to a robust and exacting quality-assurance process; avoid both the appearance and reality of financial and other conflicts of interest through staff training, project screening, and a policy of mandatory disclosure; and pursue transparency in our research engagements through our commitment to the open publication of our research findings and recommendations, disclosure of the source of funding of published research, and policies to ensure intellectual independence. For more information, visit

The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.