I have a problem with my SAS code, and I need help with generating an output for this part.
We start our investigation by answering question (I): Do dividends have valuation implications? If so, markets should react to the firm's decision to start paying dividends. If dividends convey good news about the firm, market reactions should be positive. You will address this question with an event study-employing the technique covered in module 4. For the sample of firms that announced the initiation of dividend payments, you will examine and show the pattern of abnormal and cumulative abnormal returns over the 11-day window around the announcement day. For the definition of abnormal return, use the constant-mean return model-that is, define abnormal return as the stock raw return (the variable RET in the CRSP dataset "dsf.sas 7bdat", located in "/wrds/crsp/sasdata/a_stock") minus the average return of the company's stock. For an announcement by company i at time t, define average return as the average of the variable RET for company i over the window [t365,t20] that is, from 365 calendar days before the announcement date up to 20 calendar days before the announcement date. Important: notice that the abnormal return here is different from the abnormal return used in module 4. In module 4 we employed the market-adjusted return model while here we use the constant-mean return model. Please examine formally whether markets react positively to dividend initiations. Prepare and show a table showing average abnormal returns, t-stats and p-value for 11-day window around announcements. Also create and show a graph with the pattern of average cumulative abnormal returns over the same 11-day window. Anchor your inferences on formal hypotheses testing. Also, examine whether markets respond efficiently to news in dividend initiations (for this you can assume that some dividend announcements happen after the close of the market - that is, market reactions to such announcements could happen up to one day after the event date). (Hint: notice that the examination here is based on 551 events-the observations in the dataset for which INIT=1.) One criticism of the event study is that it might be capturing something else that happens around the announcement day. Let's say, perhaps some other news that happen to be released together with announcements of dividend initiations affect many firms out thereincluding the ones announcing dividend initiations. The use of abnormal returns aims at addressing this possibility. Nevertheless, another way to address this criticism is to employ a placebo test. For each data point of our event study - that is, for each firm and its announcement that it would start paying dividendsone can draw another firm-a matched observation - that did not announce initiation of dividends and observe what happens with this matched firm in the day the original firm issued its announcement. For example, if the matched firm is collected such that it belongs to the same industry as the firm announcing dividend initiation and it happens that there is some good news for the industry at the date of the dividend initiation (DCLRDT), then it might be the case that the effect we capture in the event study above comes from the industry good news rather than the dividend announcement. Hence, let us run an event study on the returns of the matched firms around the date of the original firms' announcement of initiation of dividends. More specifically, repeat the event study except that now you examine the firms with INIT =0 instead of the firms with INIT =1. Please generate and show a new set of outputs for this new event. Examine whether there is any market reaction to the matched firms around the announcement dates. (Hint: again the examination is based on 551 events-but now the relevant observations are the ones in the dividend dataset for which INIT =0.) We start our investigation by answering question (I): Do dividends have valuation implications? If so, markets should react to the firm's decision to start paying dividends. If dividends convey good news about the firm, market reactions should be positive. You will address this question with an event study-employing the technique covered in module 4. For the sample of firms that announced the initiation of dividend payments, you will examine and show the pattern of abnormal and cumulative abnormal returns over the 11-day window around the announcement day. For the definition of abnormal return, use the constant-mean return model-that is, define abnormal return as the stock raw return (the variable RET in the CRSP dataset "dsf.sas 7bdat", located in "/wrds/crsp/sasdata/a_stock") minus the average return of the company's stock. For an announcement by company i at time t, define average return as the average of the variable RET for company i over the window [t365,t20] that is, from 365 calendar days before the announcement date up to 20 calendar days before the announcement date. Important: notice that the abnormal return here is different from the abnormal return used in module 4. In module 4 we employed the market-adjusted return model while here we use the constant-mean return model. Please examine formally whether markets react positively to dividend initiations. Prepare and show a table showing average abnormal returns, t-stats and p-value for 11-day window around announcements. Also create and show a graph with the pattern of average cumulative abnormal returns over the same 11-day window. Anchor your inferences on formal hypotheses testing. Also, examine whether markets respond efficiently to news in dividend initiations (for this you can assume that some dividend announcements happen after the close of the market - that is, market reactions to such announcements could happen up to one day after the event date). (Hint: notice that the examination here is based on 551 events-the observations in the dataset for which INIT=1.) One criticism of the event study is that it might be capturing something else that happens around the announcement day. Let's say, perhaps some other news that happen to be released together with announcements of dividend initiations affect many firms out thereincluding the ones announcing dividend initiations. The use of abnormal returns aims at addressing this possibility. Nevertheless, another way to address this criticism is to employ a placebo test. For each data point of our event study - that is, for each firm and its announcement that it would start paying dividendsone can draw another firm-a matched observation - that did not announce initiation of dividends and observe what happens with this matched firm in the day the original firm issued its announcement. For example, if the matched firm is collected such that it belongs to the same industry as the firm announcing dividend initiation and it happens that there is some good news for the industry at the date of the dividend initiation (DCLRDT), then it might be the case that the effect we capture in the event study above comes from the industry good news rather than the dividend announcement. Hence, let us run an event study on the returns of the matched firms around the date of the original firms' announcement of initiation of dividends. More specifically, repeat the event study except that now you examine the firms with INIT =0 instead of the firms with INIT =1. Please generate and show a new set of outputs for this new event. Examine whether there is any market reaction to the matched firms around the announcement dates. (Hint: again the examination is based on 551 events-but now the relevant observations are the ones in the dividend dataset for which INIT =0.)
