On November 14 Thorogood Enterprises announced that the publ

On November 14, Thorogood Enterprises announced that the public and acrimonious battle with its current CEO had been resolved. Under the terms of the deal the CEO would step down from his position immediately. In exchange, he was given a generous severance package. Company Return (%) Date Nov 7 Nov 8 Nov 9 Nov 10 Nov 11 Nov 14 Nov 15 Nov 16 Nov 17 Nov 18 Nov 21 Market Return (%) 1.7 1.8 1.3 0.3 -0.5 1.0 3.0 0.1 1.9 0.8 0.0 0.2 -0.6 25 0.1 0.9 Assume the company has an expected return equal to the market return. What is the percentage abnormal return for Date -3, which is relative to the announcement date of the event? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 1 decimal place.)

Solution

The announcement date is November 14 and Date \'-3\' relative to announcement date will be Nov 11.

Since the expected return of the stock is equal to the market return, therefore expected return of the stock on Nov 11 will be 2.5%.

Excess Return = Actual return on Nov 11 - Expected return on Nov 11 = 1% -2.5% = -1.5%.

Hence excess return on Nov 11 is -1.5%.