Question

Explain what cumulative abnormal returns (CARs) are. Draw a picture of what CARs should look like...

Explain what cumulative abnormal returns (CARs) are. Draw a picture of what CARs should look like before, during and after the announcement of unexpected negative news by a company.

Homework Answers

Answer #1

The Cumulative Abnormal Return (CAR) is the sum of all abnormal (positive or negative) returns or news like lockouts, lawsuits, buyouts and other negative events over a period, which extends its effect on the stock prices and determining the expected performance. The CAR curve shows the risk adjusted performance of the stock due to the abnormal returns.

The CAR’s curve picture should be like : As in figure attached.

The investors response can be a Positive or negative of the CAR on the announcement of the negative news by the company.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Problem 7-1 Cumulative Abnormal Returns (LO2, CFA2) On November 14, Thorogood Enterprises announced that the public...
Problem 7-1 Cumulative Abnormal Returns (LO2, CFA2) On November 14, Thorogood Enterprises announced that the public and acrimonious battle with its current CEO had been resolved. Under the terms of the deal, the CEO would step down from his position immediately. In exchange, he was given a generous severance package. Given the information below, calculate the cumulative abnormal return (CAR) around this announcement. Assume the company has an expected return equal to the market return. (A negative value should be...
Draw picture and explain your reasoning carefully to get max grade. While scouting in your rocket...
Draw picture and explain your reasoning carefully to get max grade. While scouting in your rocket ship you discover a spherical asteroid of mass 3ooo kg and radius 15 meters rotating with period of 30 seconds. You fire a 1kg probe at the center of mass with a velocity of 400 m/s. When the probe impacts the asteroid the asteroid instantaneously shrinks down to a radius of 2m yet retains the same mass (including your now very confused probe). a)...
Suggest what shape the probability distribution of returns looks like for the following and explain your...
Suggest what shape the probability distribution of returns looks like for the following and explain your suggestion (i.e. are they likely to be normal, or positively or negatively skewed? How likely are extreme values versus values close to the average?) : a) Buying bonds issued by a company that is considered a relatively high risk of default. b) A portfolio of shares in a wide range of stocks c) Buying long-term US government bonds at the current historically low yields....
Look at the period from 1970 through 1975: Index Large Company Stocks Long Term Government Bonds...
Look at the period from 1970 through 1975: Index Large Company Stocks Long Term Government Bonds US Treasury Bills Consumer Price Index 1970 3.94 18.92 6.5 5.57 1971 14.3 11.24 4.36 3.27 1972 18.99 2.39 4.23 3.41 1973 -14.69 3.3 7.29 8.71 1974 -26.47 4 7.99 12.34 1975 37.23 5.52 5.87 6.94 a. Calculate the arithmetic average returns for large-company stocks and T-bills over this period. b. Calculate the standard deviation of the returns for large-company stocks and T-bills over...
1. What is the most important aspect of any phlebotomy procedure? Why? (Explain in 8-10 sentences)...
1. What is the most important aspect of any phlebotomy procedure? Why? (Explain in 8-10 sentences) 2. Explain the reasoning behind preparing the patient before you wash your hands and put on gloves. (Explain in 10 sentences) 3. Explain why the median cubital vein is the first choice for venipuncture. (Explain in 8-10 sentences) 4. Why is the basilic vein used with caution? (Explain in 8-10 sentences) 5. Define hemoconcentration. (Explain in 8-10 sentences) 6. Describe the correct position of...
What would the worksheet, 3 financial statements, and the post-closing trial balance look like if the...
What would the worksheet, 3 financial statements, and the post-closing trial balance look like if the multistep income statement was used? World Boards Co. is a merchandising business. The account balances for the company as of December 1 2010 are as follows:    cash:$   21,200    accounts receivable:51,300    inventory:200,800    prepaid insurance:5,600     store supplies:3,800     store equipment:156,500     accumulated depreciation – equipment:18,900     accounts payable:32,200     salaries payable:----    common stock:85,100    retained earnings:100,000    dividends:45,000    income summary:-------    sales:1,073,700    sales returns and allowances:30,900    sales discounts:19,800    cost of goods sold:541,000    sales...
Complete this in C++ and explain what is being done. 1      Introduction The functions in the...
Complete this in C++ and explain what is being done. 1      Introduction The functions in the following subsections can all go in one big file called pointerpractice.cpp. 1.1     Basics Write a function, int square 1(int∗ p), that takes a pointer to an int and returns the square of the int that it points to. Write a function, void square 2(int∗ p), that takes a pointer to an int and replaces that int (the one pointed to by p) with its...
In economics, the term “scarcity”meansthere .
In economics, the term “scarcity”meansthere                    .is a shortage of the factors ofproductionis equilibrium in themarketare unlimited wants and only limitedresourcesare limited wants and unlimitedresourcesA country has an absolute advantage in producing cars ifthat country                    .has a lower opportunity cost of producing cars than any othercountrycan produce more cars in a given amount of time than any othercountryhas a higher opportunity cost of producing cars than any othercountrycharges the highest price forcarsDuring bad economic times, many people lose their jobs. How would that...
Elon Musk wasn’t smiling, when he said, “Welcome to Model 3 handover.” Through a single silver...
Elon Musk wasn’t smiling, when he said, “Welcome to Model 3 handover.” Through a single silver door, a few moments before, he had entered the room, flanked by nearly two dozen employees including an engineer and designer who joined him on stage. Black floor, rich red curtains, and slate grey backdrop and a white Tesla logo. There were no introductions necessary. At first, Musk’s voice had a breathy quality. He seemed nervous. Nerves were understandable on the precipice of what...
Case Study 1: A Day in the Life Rachel, the project manager of a large information...
Case Study 1: A Day in the Life Rachel, the project manager of a large information systems project, arrives at her office early to get caught up with work before her co- workers and project team arrive. However, as she enters the office she meets Neil, one of her fellow project managers, who also wants to get an early start on the day. Neil has just completed a project overseas. They spend 10 minutes socializing and catching up on personal...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT