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Matt's Widget Co. is suing Elon Mining Co. Today, the jury announced the outcome of the trial. There was also important news about the
Matt's Widget Co. is suing Elon Mining Co. Today, the jury announced the outcome of the trial. There was also important news about the economy: we learned the GDP growth rate was 3.2%, instead of the expected 2.0%. You know that Matt's Widget Co. has a CAPM beta of 1.2, the market return today was 4.9%, and the daily risk-free rate is 0.4%. There was no other news today and Matt's Widget Co. had a stock return of 2% today. By how much did the jury announcement change Matt's stock return today? Hint: this question asks you to use an event study. Calculate the expected return today (assuming no firm-specific news) using the CAPM. Then compare the actual return to the CAPM expected return: the difference is due to the lawsuit announcement. Enter your answer in % form without the % symbol (i.e., if your answer is 3.5%, type 3.5).
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