Homework SourseOn 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.
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.)
| Date | Market Return (%) | Company Return (%) |
| Nov 7 | 1.7 | 1.3 |
| Nov 8 | 1.8 | 1.3 |
| Nov 9 | -1.1 | -0.3 |
| Nov 10 | ?0.6 | ?0.5 |
| Nov 11 | 2.5 | 1.0 |
| Nov 14 | ?1.3 | 3.0 |
| Nov 15 | 0.1 | 0.1 |
| Nov 16 | 0.9 | 1.9 |
| Nov 17 | 1.4 | 0.8 |
| Nov 18 | ?1.4 | 0.0 |
| Nov 21 | 1.5 | 0.2 |
Solution
The announcement date is Nov 14, therefore, date -3 relative to announcement date will be Nov 11.
On Nov 11,
Market Return = 2.5%
Company Return = 1%
Since the company has an expected return equal to the market return, therefore,
Expected company return = market return =2.5%
Percentage abnormal return = Company return - Expected company return = 1% - 2.5% = -1.5%
Hence percentage abnormal return is -1.5%.
