Stock Return: Stock return (RETURN) is the actual return for the telecommunications stock at time=t. Abnormal Returns: Abnormal returns are actual returns adjusted for the return of the market portfolio (here, the S&P 500). If, for example, an individual stock exhibits a return of 8% over some period, which is exactly equal to the S&P 500 return over the same period, then the abnormal return for the individual stock is zero. The basic idea is to observe abnormal stock returns around the time a public announcement takes place, seeing what investor behavior (driving securities prices up or down) says about expected effects of the announcement. Since investors have strong incentives to carefully judge future changes in firm profitability from current information, and because capital markets are relatively efficient in rewarding good predictions while punishing inaccurate ones, stock price movements are thought to embody sophisticated and unbiased projections. Predicted: This represents the stochastic process model’s abnormal return as a percentage. Sjt: This is the estimated standard deviation of the abnormal returns for telecommunications stocks in the event period “j” “t”. SARt: This is the average standardized abnormal return that is estimated in order to test the significance of the mean abnormal return (MAR) for each day. Cumulative Abnormal Returns: CAR is the cumulative average abnormal returns for the sample of telecommunications stocks over the event period interval. The expected value of CAR is “n” zero in the absence of abnormal performance. T-Stat: This is the test statistic used to challenge the hypothesis that the CAR’s are significantly different from zero. This statistic must be modified to its relevant time period. The following formula is used to test whether or not the abnormal returns between two different groups of stocks are statistically different from each other. Probability: The probability is formulated through a normal distribution algorithm for each of the following; Abnormal Returns and Cumulative Abnormal Returns. This probability is used to determine the significance of the return on a specific day in the event study.
Stock Return: Stock return (RETURN) is the actual return for the telecommunications stock at time=t. Abnormal Returns: Abnormal returns are actual returns adjusted for the return of the market portfolio (here, the S&P 500). If, for example, an individual stock exhibits a return of 8% over some period, which is exactly equal to the S&P 500 return over the same period, then the abnormal return for the individual stock is zero. The basic idea is to observe abnormal stock returns around the time a public announcement takes place, seeing what investor behavior (driving securities prices up or down) says about expected effects of the announcement. Since investors have strong incentives to carefully judge future changes in firm profitability from current information, and because capital markets are relatively efficient in rewarding good predictions while punishing inaccurate ones, stock price movements are thought to embody sophisticated and unbiased projections. Predicted: This represents the stochastic process model’s abnormal return as a percentage. Sjt: This is the estimated standard deviation of the abnormal returns for telecommunications stocks “j” in the event period “t”. SARt: This is the average standardized abnormal return that is estimated in order to test the significance of the mean abnormal return (MAR) for each day. Cumulative Abnormal Returns: CAR is the cumulative average abnormal returns for the sample of “n” telecommunications stocks over the event period interval. The expected value of CAR is zero in the absence of abnormal performance. T-Stat: This is the test statistic used to challenge the hypothesis that the CAR’s are significantly different from zero. This statistic must be modified to its relevant time period. The following formula is used to test whether or not the abnormal returns between two different groups of stocks are statistically different from each other. Probability: The probability is formulated through a normal distribution algorithm for each of the following; Abnormal Returns and Cumulative Abnormal Returns. This probability is used to determine the significance of the return on a specific day in the event study.
09VerizonReport.docx