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Keywords:

  • event study;
  • continuously compounded returns;
  • Cumulative Average Returns;
  • geometric means;
  • corporate finance

Cross-sectional averages of log returns have been used to measure shareholder wealth effects in several event studies. No adequate explanation of the implied portfolio strategy has ever been provided in the literature. We argue that the method is biased or does not portray a realistic portfolio strategy. It should therefore be used with caution in the event-study' literature.