Abstract: We apply methodology robust to outliers to an existing event study of the effect of U.S. financial reform on the stock markets of the 10 largest world economies, and obtain results that differ from the original OLS results in important ways. This finding underlines the importance of han dling outliers in event studies. We further review closely the population of outliers identified using Cook’s distance and find that many of the out liers lie within the event windows. We acknowledge that those data points lead to inaccurate regression fitting; however, we cannot remove them since they carry valuable information regarding the event effect. We study further the residuals of the outliers within event windows and find that the resid uals change with application of M-estimators and MM-estimators; in most cases they became larger, meaning the main prediction equation is pulled back towards the main data population and further from the outliers and indicating more proper fitting. We support our empirical results by pseudo simulation experiments and find significant improvement in determination of both types of the event effect − abnormal returns and change in systematic risk. We conclude that robust methods are important for obtaining accurate measurement of event effects in event studies.
Abstract: There has been great interest in the Southern Illinois mine war by historians. An explanation has been that this war was caused by miners who had radical political beliefs. We examine this view by applying four methods of ecological inference to estimate the proportion of coal miners who were socialist voters in this time period. Based on these results (especially considering the assumptions of the methods) we conclude that miners were politically less radical than previously thought.
In the recent statistical literature, the difference between explanatory and predictive statistical models has been emphasized. One of the tenets of this dichotomy is that variable selection methods should be applied only to predictive models. In this paper, we compare the effectiveness of the acquisition strategies implemented by Google and Yahoo for the management of innovations. We argue that this is a predictive situation and thus apply lasso variable selection to a Cox regression model in order to compare the Google and Yahoo results. We show that the predictive approach yields different results than an explanatory approach and thus refutes the conventional wisdom that Google was always superior to Yahoo during the period under consideration.