An event study is a regression analysis that examines changes to a firm’s stock price when new information about the firm is revealed. It’s premised on the concept that a portion of the change in a firm’s stock price reflects new information about the firm’s future prospects that has been revealed, for better or for worse. Event Studies are great for observing how investors react to specific firm news, good and bad. For Management History, an event study provides a means for assessing sentiment about an action of a publicly-held firm. Many events which are reported in the news have conflicting perspectives: an event study provides one piece of evidence supporting one of those perspectives. It’s also helpful for discerning what events influence subsequent executive actions. Event Study reactions are often analyzed via multivariate regression to search for moderating effects, discerning if specific sub-groups have different market reactions or not. In this PDW we explain the event study process, explaining the various parameters researchers must select. We identify several available event study tools, both free and paid, discussing the merits to each. We shall also demonstrate a simple event study during the event, using a free software. We’ll also demonstrate how to run a regression using Microsoft Excel, create a correlation matrix, and analyze Variance Inflation Factors. We’ll also explain how it can be used in researching Management History topics, what types of topics are best suited for it, and how best to use it.
