Finance (Investments)

Homework #7

FINA 351, Fall 2016

This homework involves a small-scale application of the event study approach we went over in class. Based on the Excel dataset used in class, choose five mergers and complete the following.

1. List the five mergers you choose (buyer, seller and press date).

2. Estimate the single-index model for each of the five merger firms using data of -250 to -150. Report the beta for each of the five merger firms.

3. Define the event window as -100 to +30. Calculate abnormal returns for each of the event days for each of the merger firms. Calculate the cumulative abnormal returns for each of the merger firms and graph them over the event window. Present the five graphs here.

4. Following step 3, calculate the average abnormal returns (across the five mergers) for each of the days in the event window. Calculate the cumulative abnormal returns and graph them. Present the graph below.

5. Within 25 words, comment on the graphs from steps 3 and 4.