Thus a measure of the event's economic impact can be constructed using security prices observed over a relatively short time period".
However, Kothari and Warner (2005) were able to refine long-horizon methodologies in order to improve the design and reliability of the studies over longer periods.
Depending on the model chosen for the 'normal return', conducting event studies requires the researcher to implement a distinct sequence of steps.
Various test statistics at the different levels of analysis (i.e., AR-, CAR-, AAR- and CAAR-level) exist for this purpose.
Besides of these multi-use tools, there are solutions tailored to conducting event study analyses (e.g., Eventus, EventStudyTools).
The logic behind the event study methodology (within the specific context of mergers) is explained in Warren-Boulton and Dalkir (2001):[11] Warren-Boulton and Dalkir (2001)[11] apply their event-probability methodology to the proposed merger between Staples, Inc. and Office Depot (1996), which was challenged by the Federal Trade Commission and eventually withdrawn.
The results of event studies have been accepted as evidence in litigation in US, in the quantification of damages in cases relating to securities fraud.