Characteristic-based benchmark returns and corporate events

Hendrik Bessembinder, Michael J. Cooper, Feng Zhang

Research output: Contribution to journalReview article

3 Scopus citations

Abstract

We propose that fitted values from market-wide regressions of firm returns on lagged firm characteristics provide useful benchmarks for assessing whether average returns to certain stocks are abnormal. To illustrate, we study eight documented events with abnormal returns, including credit rating and analyst recommendation downgrades, initial and seasoned public equity offerings, mergers and acquisitions, dividend initiations, share repurchases, and stock splits. We show that the apparently abnormal returns in the months after these events are substantially reduced or eliminated when compared to characteristic-based benchmarks. Characteristic-based benchmarks perform better in explaining post-event returns than do recent four- and five-factor models.

Original languageEnglish (US)
Pages (from-to)75-125
Number of pages51
JournalReview of Financial Studies
Volume32
Issue number1
DOIs
StatePublished - Jan 1 2019
Externally publishedYes

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ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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