Finance and Economics Discussion Series (FEDS)
Level Shifts in Beta, Spurious Abnormal Returns and the TARP Announcement
Andrew Phin, Todd Prono, Jonathan J. Reeves, and Konark Saxena
Using high frequency data, we develop an event study method to test for level shifts in beta and measure abnormal returns for events that produce such level shifts. Using this method, we estimate abnormal returns for the Troubled Asset Relief Program (TARP) announcement and find that its abnormal returns are largely realized on the first day. The abnormal returns in the remaining post event period, which show up as a drift using standard methodology, are attributed to level shifts in beta.
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Keywords: Event studies, intraday returns, systematic risk
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