how an event study works
an event study also known as event history analysis employs statistical methods using time as the dependent variable and then looking for variables that explain the duration of an event or the time until an event occurs event studies that use time in this way are often employed in the insurance industry to estimate mortality and compute life tables in business these types of studies may instead be used to forecast how much time is left before a piece of equipment fails alternatively they could be used to predict how long until a company goes out of business an event study whether on the micro or macro level tries to determine if a specific event has or will have an impact on a business s or economy s financial performance other event studies such as an interrupted time series analysis itsa compare a trend before and after an event to explain how and to what degree the event changed a company or a security this method may also be employed to see if the implementation of a particular policy measure has resulted in some statistically significant change after it has been put in place an event study conducted on a specific company examines any changes in its stock price and how it relates to a given event it can be used as a macroeconomic tool as well as analyzing the influence of an event on an industry sector or the overall market by looking at the impact of the change in supply and demand event study methodologytheoretically a stock price takes into account all available information and expectations about the future according to this theory it is possible to analyze the effect of a specific event on a company by looking at the associated impact on the company s stock the market model is the most common analysis used for an event study this methodology looks at the actual returns of a baseline reference market and tracks the correlation of a company s stock with the baseline the market model monitors the abnormal returns on the specific day of an event studying the stock s returns and comparing them to the normal or average returns the difference is the actual impact on the company this technique can be used over time analyzing consecutive days to understand how an event affects a stock over time an event study can reveal greater market trends or patterns if the same type of model is used to analyze multiple events of the same type it can predict how stock prices typically respond to a specific event 