MN-3501 Financial Economics (2022-2023)

Seminar (week 2)

Topic: Event Study (1)

Q1: Design an event study (The UK national lockdown) for the UK
companies

A) Step 1: Define an event

(1) List the event(s) you would like to test for the UK national
lockdown : Including but not limited to
 23rd March 2020 (Boris Jonson made the announcement)
See examples at:
https://www.instituteforgovernment.org.uk/sites/default/files/tim
eline-lockdown-web.pdf

(2) Identify Day -1, 0 and 1 for those event(s).

 23rd March 2020 (Monday)

(3) Explain why those event(s) you think would trigger stock
market reaction.

(4) Are those events well anticipated? Good or bad idea for event
study then?

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B) Step 2 : Firm selection criteria

(5) What kind of companies should be considered for this study?

And why?

(6) Any industry effect from national lockdown? Which industry

is more (or less) likely to be affected by national lockdown?
And why?

C) Step 3 & 4 :Estimating normal return

(7) If you consider employing market model to estimate the

normal return (ER), which model below you would
recommend? Explain your answer.

Option 1:
ER the UK firm = α + β * RFTSE ALL + ε

Where ER is the normal return for a UK firm and FTSE ALL

is the market index for London Stock Exchange

Option 2:
ER the UK firm = α + β * RGlobal + ε

Where ER is the normal return for a UK firm and Global

is the market index for Global market index (including
countries without lockdown)

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(8) You have estimated the normal return (ER) for TESCO and
pharmaceutical giant GlaxoSmithKline (GSK) in the event of
lockdown announcement (23rd March 2020). What conclusion
you may draw from the table below?

Event window TESCO TESCO GSK GSK

Actual Return Normal Return Actual Return Normal Return
based on based on
market model market model
Day -1 -10.94% 0.74% -6.21% 0.65%
th
(20 Mar 2020)
Day 0 -2.43% -3.80% -6.08% -4.10%
rd
(23 Mar 2020)
Day 1 -6.17% 9.05% -2.21% 8.17%
th
(24 Mar 2020)
Day 2 -3.04% 4.44% -0.70% 3.25%
th
(25 Mar 2020)

Q2: Read the paper Jones, Kyiu and Li. (2020): <Earnings
informativeness and trading frequency: Evidence from African
markets>, International Journal of Finance and Economics

(9) What are events defined in this study? Why would stock
market react to such an event?

(10) This study requires stocks to have experienced price change

(non-zero returns) in at least 50% of the trading days in the

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previous year (page.7). Dose such a selection criteria make

sense?

(11) Explain the result below (Part of Table 3 in page 11)

(12) According to the table in question (11), is there any

difference for those three countries: Kenya, Nigeria and
South Africa?

(13) According to the table in question (11), is African market

consistent with efficient market hypothesis (EMH)?