On November 19, 2019, TWY Corporation announced that it would undertake an international joint venture with PWQ Corporation. Both companies are large, publicly traded companies. On November 18, 2019, TWY Corp. was trading at $15 a share and had a beta of 2.25. On the same day, PWQ Corp. was trading at $39 a share and had a beta of 0.87.

a) What is the purpose of an event study?

b) On November 19, 2019, the annualized market return was 12% and the risk-free rate is 4%. You observe that, on the day of the announcement, TWY Corporation experienced an annualized return of 15%. Assuming markets are efficient, what does this suggest about how the market perceived the news? Show work.

c) Ten days later, PWQ Corp announced that its fourth quarter earnings will be 10% higher than last year's fourth quarter. The company experienced an abnormal return of -1.2%. What does this suggest about how investors view the earnings announcement?