Question

Ross Co., Westerfield, Inc., and Jordan Company announced a new agreement to market their respective products in China on July 18 (7/18), February 12 (2/12), and October 7 (10/7), respectively. Given the information below, calculate the cumulative abnormal return (CAR) for these stocks as a group. Assume all companies have an expected return equal to the market return. (A negative value should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to 1 decimal place.)

Ross Co.				Westerfield, Inc.				Jordan Company
Date	Market Return	Company Return		Date	Market Return	Company Return		Date	Market Return	Company Return
7/12	-0.3	-0.8		2/8	-0.3	-0.8		10/1	0.5	0.6
7/13	0.3	0.4		2/9	-0.6	-0.8		10/2	0.4	0.6
7/16	0.4	0.6		2/10	0.4	0.6		10/3	0.7	1.3
7/17	-0.6	-0.2		2/11	0.6	1.2		10/6	-0.1	-0.7
7/18	-1.7	1.3		2/12	-0.1	0.1		10/7	-2.2	-0.7
7/19	-1	-0.4		2/15	1.1	1.6		10/8	0.1	0.5
7/20	-0.9	-0.3		2/16	0.7	0.5		10/9	-0.5	-0.6
7/23	0.6	0.4		2/17	-0.1	0		10/10	0.1	-0.1
7/24	0.3	0		2/18	0.7	0.4		10/13	-0.5	-0.6

	Abnormal returns (Ri – R­M)
Days from announcement	Ross	W’field	Jordan	Sum	Average abnormal return	Cumulative average residual
−4
−3
−2			0.0
−1
0
1
2
3
4

1 decimal places required.

Answer 1

Ans:

Ross Co. calculation
Days from announcement	Average market return	Average company return	Ross Co.
-4	-0.1	0.0	0.1
-3	0.0	0.3	0.2
-2	-0.1	0.2	0.3
-1	-0.6	-0.2	0.4
0	-1.7	1.3	3.0
1	-1.0	-0.4	0.6
2	-1.0	-0.4	0.6
3	-0.4	-0.1	0.3
4	-0.3	-0.1	0.2

Westerfield, Inc. calculation
Days from announcement	Average market return	Average company return	Westerfield, Inc.
-4	0.0	0.1	0.0
-3	0.1	0.3	0.2
-2	0.5	0.9	0.4
-1	0.6	1.2	0.6
0	-0.1	0.1	0.2
1	1.1	1.6	0.5
2	0.9	1.1	0.2
3	0.6	0.7	0.1
4	0.6	0.6	0.0

Jordan Company calculation
Days from announcement	Average market return	Average company return	Jordan
-4	0.4	0.5	0.1
-3	0.3	0.4	0.1
-2	0.3	0.3	0.0
-1	-0.1	-0.7	-0.6
0	-2.2	-0.7	1.5
1	0.1	0.5	0.4
2	-0.2	-0.1	0.2
3	-0.1	-0.1	0.0
4	-0.2	-0.2	0.0

Days from announcement	Ross	W’field	Jordan	Sum	Average abnormal return	Cumulative average residual
−4	0.1	0.0	-0.1	0.0	0.0	0.0
−3	0.2	0.2	-0.1	0.4	0.1	0.2
−2	0.3	0.4	0.0	0.7	0.2	0.5
−1	0.4	0.6	0.6	1.6	0.5	1.1
0	3.0	0.2	-0.5	2.8	0.9	1.8
1	0.6	0.5	-0.4	0.7	0.2	0.4
2	0.6	0.2	-0.3	0.5	0.2	0.3
3	0.3	0.1	-0.2	0.3	0.1	0.2
4	0.2	0.0	-0.2	0.1	0.0	0.0