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On the Use of the Log CAR Measure in Event Studies

Authors

  • Gishan Dissanaike,

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  • Alexandre Le Fur

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       The authors are respectively a tenured faculty member of the Judge Institute of Management, University of Cambridge and a Vice President at Dresdner Kleinwort Wasserstein. They are grateful to Bart Lambrecht, Shiyun Wang and an anonymous referee for their comments. Dissanaike acknowledges support from the Economic and Social Research Council (Grant No. H53627503496) and the Institute of Chartered Accountants of England & Wales. Le Fur acknowledges support from the British Council and Kleinwort Benson Bank. (Paper received January 2002, accepted November 2002)


†Gishan Dissanaike, The Judge Institute of Management, University of Cambridge, Trumpington Street, Cambridge CB2 1AG, UK. e-mail: grd13@cam.ac.uk

Abstract

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.

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