14 Journal of Economic Literature,Vol.XXXV (March 1997) creased in 57 of the cases and the price with the necessary tools for calculating declined in only 26 instances.Over the an abnormal return,making statistical in- decades from the early 1930s until the ferences about these returns,and aggre- late 1960s the level of sophistication of gating over many event observations. event studies increased.John H.Myers The null hypothesis that the event has no and Archie Bakay (1948),C.Austin impact on the distribution of returns is Barker (1956,1957,1958),and John maintained in Sections 4 and 5.Section 6 Ashley (1962)are examples of studies discusses modifying this null hypothesis during this time period.The improve- to focus only on the mean of the return ments included removing general stock distribution.Section 7 presents analysis market price movements and separating of the power of an event study.Section 8 out confounding events.In the late presents nonparametric approaches to 1960s seminal studies by Ray Ball and event studies which eliminate the need Philip Brown (1968)and Eugene Fama for parametric structure.In some cases et al.(1969)introduced the methodology theory provides hypotheses concerning that is essentially the same as that which the relation between the magnitude of is in use today.Ball and Brown consid- the event abnormal return and firm char- ered the information content of earn- acteristics.Section 9 presents a cross- ings,and Fama et al.studied the effects sectional regression approach that is use- of stock splits after removing the effects ful to investigate such hypotheses. of simultaneous dividend increases. Section 10 considers some further issues In the years since these pioneering relating event study design and the pa- studies,a number of modifications have per closes with the concluding discussion been developed.These modifications re- in Section 11. late to complications arising from viola- tions of the statistical assumptions used 2.Procedure for an Event Study in the early work and relate to adjust- ments in the design to accommodate At the outset it is useful to briefly dis- more specific hypotheses.Useful papers cuss the structure of an event study.This which deal with the practical importance will provide a basis for the discussion of of many of the complications and adjust- details later.While there is no unique ments are the work by Stephen Brown structure,there is a general flow of and Jerold Warner published in 1980 and analysis.This flow is discussed in this 1985.The 1980 paper considers imple- section. mentation issues for data sampled at a The initial task of conducting an event monthly interval and the 1985 paper study is to define the event of interest deals with issues for daily data. and identify the period over which the In this paper,event study methods are security prices of the firms involved in reviewed and summarized.The paper this event will be examined-the event begins with discussion of one possible window.For example,if one is looking at procedure for conducting an event study the information content of an earnings in Section 2.Section 3 sets up a sample with daily data,the event will be the event study which will be used to illus- earnings announcement and the event trate the methodology.Central to an window will include the one day of the event study is the measurement of an ab- announcement.It is customary to define normal stock return.Section 4 details the event window to be larger than the the first step-measuring the normal specific period of interest.This permits performance-and Section 5 follows examination of periods surrounding the