In an event study, what two steps does a researcher take to adjust for the valuation effects of other new (and simultaneously-revealed) value-relevant information, in order to isolate the valuation effect of a specific event?
a. (i) using the market model to remove the effects of other firm-specific factors; and (ii) averaging abnormal returns across many firms with a similar event to wash out the effect of the market.
b. (i) using the market model to remove the effect of the market; and (ii) averaging abnormal returns across many firms with a similar event to wash out the effects of other firm-specific factors.
c. (i) averaging returns on ‘event' stocks over several days to ‘smooth' the information impact; and (ii) washing out the effect of the market by including only days when the market return was small.
d. (i) averaging returns on ‘event' stocks over several days by including only days when the market return was small; and (ii) washing out the effect of the market to ‘smooth' the information impact.
B
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