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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.

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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.

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