Introduction

There is a dearth of materials at the undergraduate level for how to conduct “finance-style” event studies. This page collects some resources, including providing some example materials that can be used for teaching this at the (advanced) undergraduate level.


Alchian example

The year before the Hbomb was successfully created, we in the economics division at RAND were curious as to what the essential metal was-lithium, beryllium, thorium, or some other. The engineers and physicists wouldn’t tell us economists, quite properly, given the security restrictions. So I told them I would find out. I read the U.S. Department of Commerce Year Book to see which firms made which of the possible ingredients. For the last six months of the year prior to the successful test of the bomb, I traced the stock prices of those firms. I used no inside information. Lo and behold! One firm’s stock prices rose, as best I can recall, from about $2 or $3 per share in August to about $13 per share in December. It was the Lithium Corp. of America. In January, I wrote and circulated within RAND a memorandum titled “The Stock Market Speaks.” Two days later I was told to withdraw it. The bomb was tested successfully in February, and thereafter the stock price stabilized. (Alchian, 1996)

Newhard, Journal of Corporate Finance (2014) summarizes Alchian’s study. The links below provide the data and code to formally conduct an event study using this incident a-la Ball and Brown and Fama, Fisher, Jensen and Roll as a lab assignment or problem set for students who may want to use this methodology for their own research projects.

  1. Github repository with data and code.
  2. Paper outlining the technique and some pedagogical advice (Version as of September 2024; under revision for the Journal of Economic Education)

This is a (nonexhaustive) list of articles I’ve used as a starting place for teaching undergraduates about event studies

  1. MacKinlay, JEL 1997, “Event Studies in Economics and Finance”
  2. Kothari and Warner Handbook of Empirical Corporate Finance (2007) “Econometrics of Event Studies”
  3. Nick Huntington-Klein The Effect Chapter 17