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Event study question from old exams Question 2 ( 18 points) On December 2, 2021, Abano AG sompetitor Betono AG announced its plan to take
Event study question from old exams Question 2 ( 18 points) On December 2, 2021, Abano AG sompetitor Betono AG announced its plan to take over the online dating platform Celoso Corp. You are tasked with finding out whether Betono's announcement had an impact on Aband's stock price. Over the 200 trading days preceding December 1, 2021, the average daily return of Aband AG was 0.40% (variance: 0.75% ). The average dally market return was 0.20% (variance: 0.10% ). The covariance between Abana's returns and market returns was 0.13%. The table below lists the stock price of Aband AG and the market index around the announcement date. a) To prepare your event study, determine Abang's alpha and beta of the market model (4 points). If you are unable to calculate alpha and beta from the given numbers, you can assume an alpha of 0.01% and a beta of 1.5. Note that these may not be the correct values. b) Compute the cumulative abnormal return over the 3-day event window from one day before to one day after the announcement (CAR[-1;+1]) using the market model. (8 points) c) Your assistant computed the variance of Aband's abnormal returns over the 200 trading days preceding December 1, 2021 as 0.20%. Test the statistical significance of your CAR using a t-test. Did the merger announcement have an effect on the firm value of Abana? Use a significance level of 5%. (4 points) d) Abana's CEO looks at the results of your event study. "This is one more sign that Betono employees involve in insider trading", he tells you. Do you agree? Why or why not? (2 points)
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