Journal of Economic Literature Vol.XXXV (March 1997),pp.13-39 Event Studies in Economics and Finance A.CRAIG MACKINLAY The Wharton School,University of Pennsylvania Thanks to John Campbell.Bruce Grundy.Andrew Lo.and two anonymous referees for helpful comments and discussion.Research support from the Rodney L.White Center for Financial Research is gratefully acknowledged. 1.Introduction deficit.I However,applications in other fields are also abundant.For example, the ee omm event studies are used in the field of law event on the value of firms.On the sur- and economics to measure the impact on face this seems like a difficult task,but a the value of a firm of a change in the measure can be constructed easily using regulatory environment (see G.William an event study.Using financial market Schwert 1981)and in legal liability cases data,an event study measures the impact event studies are used to assess damages of a specific event on the value of a firm. (see Mark Mitchell and Jeffry Netter The usefulness of such a study comes 1994).In the majority of applications, from the fact that,given rationality in the focus is the effect of an event on the the marketplace,the effects of an event price of a particular class of securities of will be reflected immediately in security the firm,most often common equity.In prices.Thus a measure of the event's this paper the methodology is discussed economic impact can be constructed in terms of applications that use common using security prices observed over a equity.However,event studies can be relatively short time period.In contrast, applied using debt securities with little direct productivity related measures may modification. require many months or even years of Event studies have a long history.Per- observation. haps the first published study is James The event study has many applica- Dolley (1933).In this work,he examines tions.In accounting and finance re- the price effects of stock splits,studying search,event studies have been applied mominal price changes at the time of the to a variety of firm specific and economy split.Using a sample of 95 splits from wide events.Some examples include 1921 to 1931,he finds that the price in- mergers and acquisitions,earnings an- mouncements,issues of new debt or eq- 1The first three examples will be discussed later uity,and announcements of macro- in the paper.Grant McQueen and Vance Roley (1993)provide an illustration of the fourth using economic variables such as the trade macroeconomic news announcements. 13