• This event study will examine the average stock market reaction of the FTSE 100 Index to particular terrorist attack events (1. Paris November 13, 2015, 2. Berlin, Germany December 2016) \r\n\r\nTo conduct the event study:\r\n\r\n1. The EVENT DATES are November 13, 2015 (Paris) & December 19, 2016 (Berlin) \r\n\r\n2. Sample of companies – FTSE 100 Index will be used to identify the stock reactions on the companies from the particular terrorist attacks. \r\n\r\n
3. Daily stock price data should be collected on all the FTSE 100 companies. The time period to be studied around the EVENT DATE is -20 days before the event dates, up to +20 days after the event occurs. The event date is referred to as date 0. \r\nSample period timeline (-20, -19, -18……., -1, 0, +1, ……+18, +19, +20) \r\n\r\n
4. For each firm in the sample daily return should be computed using the formula: \r\n
5. For each firm in the sample the abnormal return should be computed, by deducting the expected return from the actual return:\r\n Abnormal return = expected return – actual return\r\n\r\nThe expected return is estimated from an appropriate asset pricing model e.g CAPM\r\n\r\nFormula: ra = rrf + Ba (rm-rrf) \r\nwhere:\r\nrrf = the rate of retun for a risk-free security \r\nrm = the broad market\’s expected rate of return \r\nBa = beta of the asset \r\n\r\n
6. For each event date compute average abnormal return across companies in the sample. Test whether this average abnormal return is statistically significant from zero. \r\n
7. Cumulated abnormal returns to obtain a simple picture of the cumulative average abnormal return – measure average abnormal stock price movements. Undertake a statistical test of the null hypothesis of zero- abnormal cumulative returns. \r\n\r\n8. Examine results.\r\n
