Implementing and interpreting event studies of regulatory changes |
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| Institution: | 1. Department of Competition and Financial Market Structure, Central Bank of Brazil, Brazil, Head of Division, PhD in Finance and Quantitative Methods at University of Brasilia;2. Department of Competition and Financial Market Structure, Central Bank of Brazil, Brazil, Head of Division, PhD in Finance at Tilburg University;3. Department of Competition and Financial Market Structure, Central Bank of Brazil, Brazil, Coordinator, PhD in Finance and Quantitative Methods at University of Brasilia;1. School of International Trade and Economics, University of International Business and Economics, Beijing 100027, China;1. Department of Banking and Finance, University of Zurich, Swiss Finance Institute, CEPR, and ECGI, Plattenstrasse 14, CH-8032 Zurich, Switzerland;2. Harvard Kennedy School, Harvard University and NBER, 79 JFK Street, Cambridge, MA 02139, USA;3. Department of Banking and Finance, University of Zurich, Plattenstrasse 14, CH-8032 Zurich, Switzerland |
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| Abstract: | The study of the stock price reaction to an event is a standard tool in economics and finance. The spate of regulatory changes in recent years provides ample opportunity for such studies. However, event studies of regulatory changes present a number of challenges. Analysts must carefully design and interpret tests of hypotheses regarding the effects of regulatory changes because of the nature of the regulatory process and financial markets. I discuss the way to test for the impact of regulatory changes in an event study. I also comment on what event studies can and cannot tell us about the effects of regulatory changes, and on ways to more effectively implement them. |
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