Review of Quantitative Finance and Accounting, 11 (1998): 111–137
© 1998 Kluwer Academic Publishers, Boston. Manufactured in The Netherlands.
The Event Study Methodology Since 1969
JOHN J. BINDER
Department of Finance (MC 168), College of Business, University of Illinois-Chicago, 601 S. Morgan St.,
Chicago, IL 60607-7124
Abstract. This paper discusses the event study methodology, beginning with FFJR (1969), including hypoth-
esis testing, the use of different benchmarks for the normal rate of return, the power of the methodology in
different applications and the modeling of abnormal returns as coefﬁcients in a (multivariate) regression frame-
work. It also focuses on frequently encountered statistical problems in event studies and their solutions.
Key words: Event study, ﬁnance methodology
An often heard statement in economics and ﬁnance is that any article which is cited ten
or more times a year for ten years is a classic. Even by this standard, the paper by Fama,
Fisher, Jensen and Roll (FFJR) (1969), which introduced the event study methodology,
stands out in the academic profession. For example, from its publication through 1994 this
article was, according to the Social Sciences Citation Index, cited a total of 516 times.
This works out to an average of about 21 times a year over a 25 year period. It is,
therefore, surprising when Fama (1991, p. 1599) notes in retrospect that the impetus
behind the FFJR paper, which was suggested by James Lorie, was simply to develop an
application of the new Center for Research in Security Prices (CRSP) monthly return data
for New York Stock Exchange (NYSE) stocks.
FFJR started a methodological revolution in accounting and economics as well as
ﬁnance, since the event study methodology has also been widely used in those disciplines
to examine security price behavior around events such as accounting rule changes, earn-
ings announcements, changes in the severity of regulation and money supply announce-
The event study methodology has, in fact, become the standard method of mea-
suring security price reaction to some announcement or event. In practice, event studies
have been used for two major reasons: 1) to test the null hypothesis that the market
efﬁciently incorporates information (see Fama (1991) for a summary of this evidence) and
2) under the maintained hypothesis of market efﬁciency, at least with respect to publicly
available information, to examine the impact of some event on the wealth of the ﬁrm’s
This paper reviews developments in the event study methodology beginning with FFJR.
My intention is to highlight the various extensions of the original FFJR technique and
related contributions that have appeared since 1969. Of course, this survey is selective in
that it partly reﬂects the interests and tastes of the author.
@ats-ss2/data11/kluwer/journals/requ/v11n2art1 COMPOSED: 07/01/98 2:25 pm. PG.POS. 1 SESSION: 15