I was recently chatting with some alumni who shocked me by saying they regularly hit the Lawrence Econ blog for… Well, I forgot to ask why they came to the blog, but presumably for posts like this.
Today’s question: how can we quantitatively assess the impact of a big event?
The answer, sometimes, is to set up an event study! Craig MacKinlay has a nice overview in the Journal of Economic Literature (cited more than 3000 times!) where he shows how to evaluate the impact of an event on the value of a firm (or firms). The basic idea is that if the event is unanticipated, you can look at the value of the firm before and after the event, and see how “the market” assessed the event’s impact.
Leah Libresco at the FiveThirtyEight website recently took a look at how the recent Supreme Court decision on the Patient Protection and Affordable Care Act (PPACA) (a.k.a. “Obamacare”) affected the value of big insurance companies. The picture is after the bump: Continue reading Event Studies