Question

Delta, United, and American Airlines announced purchases of planes on July 18 (7/18), February 12 (2/12), and October 7 (10/7), respectively.

Delta			United			American
Date	Market Return	Company Return	Date	Market Return	Company Return	Date	Market Return	Company Return
7/12	−.43	−.65	2/8	−.92	−1.24	10/1	.63	.39
7/13	.00	.33	2/9	−1.02	−1.24	10/2	.53	.71
7/16	1.28	1.59	2/10	.53	.22	10/3	1.23	1.23
7/17	−1.28	−1.08	2/11	.73	3.53	10/6	.23	−2.77
7/18	−2.22	1.12	2/12	−.43	−.18	10/7	−2.33	−.44
7/19	−.86	−.69	2/15	1.23	2.91	10/8	.63	.63
7/20	−.92	−1.16	2/16	.63	.63	10/9	−.43	−.19
7/23	.74	.52	2/17	−.43	−.32	10/10	.43	−.24
7/24	.23	.07	2/18	.43	.29	10/13	.00	−.23

Given the above information, calculate the cumulative abnormal return (CAR) for these stocks as a group. All of the stocks have a beta of 1 and no other announcements are made.

	Abnormal returns (Ri – R­M)
Days from announcement	Delta	United	American	Sum	Average abnormal return	Cumulative abnormal return
-4
-3
-2
-1
0
1
2
3
4

Answer 1

Ans : Abnormal return is calculated as Company return - market return

Sum average abnormal return = (Delta Ab return+ United Ab return+AMerican ab return)/3

Cumulative abnormal return = Sum average return of previous day + sum average return of current day

	Abnormal Return(Ri-RM)	United American Delta Sum average abnormal return	Cummulative abnormal return
Days from announcement	Delta	United	American
-4	-0.22	-0.32	-0.24	-0.2600	-0.2600
-3	0.33	-0.22	0.18	0.0967	-0.1633
-2	0.31	-0.31	0	0.0000	-0.1633
-1	0.20	2.8	-3	0.0000	-0.1633
0	3.34	0.25	2.77	2.1200	1.9567
1	0.17	1.68	0	0.6167	2.5733
2	-0.24	0	0.24	0.0000	2.5733
3	-0.22	0.11	-0.67	-0.2600	2.3133
4	-0.16	-0.14	-0.23	-0.1767	2.1367