Characteristic-based benchmark returns and corporate events

Hendrik Bessembinder, Michael J. Cooper, Feng Zhang

Research output: Contribution to journalReview article

3 Citations (Scopus)

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

Fingerprint

Benchmark
Abnormal returns
Factors
Stock splits
Mergers and acquisitions
Dividend initiation
Five-factor model
Share repurchases
Firm characteristics
Credit rating
Analyst recommendations
Equity offerings

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

Characteristic-based benchmark returns and corporate events. / Bessembinder, Hendrik; Cooper, Michael J.; Zhang, Feng.

In: Review of Financial Studies, Vol. 32, No. 1, 01.01.2019, p. 75-125.

Research output: Contribution to journalReview article

Bessembinder, Hendrik ; Cooper, Michael J. ; Zhang, Feng. / Characteristic-based benchmark returns and corporate events. In: Review of Financial Studies. 2019 ; Vol. 32, No. 1. pp. 75-125.
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