In this question, we will conduct an event study. Consider the following 4 stocks that announced significant dividend increases. The stocks and announcement dates are as follows:

In this question, we will define abnormal return as the return in excess of return on the market portfolio.

(A) Compute for the return per day.

(B) Compute abnormal return on Guess stock on the day the dividend increase was announced.

(C) Compute abnormal return on the announcement date for the remaining 3 stocks. What is the average abnormal return (AAR) across all 4 stocks? Recall from the lecture that AAR equals to

Let's denote the announcement date as ''Day 0.'' For each stock, compute daily abnormal returns starting on Day -10 and ending on Day +10. Use only business days in your calculations, i.e. ignore weekends and holidays. In the sample, the holidays are Apr 17, 1981; Apr 6, 2007; Nov 22, 2012; July 4, 2014. For example, for Guess (GES), Day -10 is Tuesday, Nov 13, 2012 and Day +10 is Wednesday, Dec 12, 2012. Compute AAR on each day, starting from -10 and ending on +10.

Compute AAR on each day, starting from -10 and ending on +10.

(D) What is the AAR on Day -10

(E) What is the AAR on Day +10?

(F) Compute cumulative average abnormal return (CAAR) from Day -10 to Day -1.

(G) Compute cumulative average abnormal return (CAAR) from Day +1 to Day +10.

Starting on Day -1, compute CAAR for each day staring on -1 and ending on +10, and plot the graph. Comment on what you see on the graph. Compare you graph with the suggested graphs and choose the correct one.

(H) What is the correct CAAR graph? A1/A2/A3/B1/B2/B3 ?

\begin{tabular}{|l|c|c|c|} Company & Announcement Date & Dividends Before & Announced Dividends \\ \hline CESSNA AIRCRAFT & Apr 15, 1981 & 0.01 & 0.02 \\ BON TON STORES INC & Mar 29, 2007 & 0.025 & 0.05 \\ GREENBRIER COMPANIES INC & Jul 2, 2014 & No Div & 0.15 \\ GUESS INC & Nov 28, 2012 & a special \$1.20-a-share dividend \end{tabular} AARt=N1i=1NARit for N stocks. CAAR=t=t1t2AARt \begin{tabular}{|l|c|c|c|} Company & Announcement Date & Dividends Before & Announced Dividends \\ \hline CESSNA AIRCRAFT & Apr 15, 1981 & 0.01 & 0.02 \\ BON TON STORES INC & Mar 29, 2007 & 0.025 & 0.05 \\ GREENBRIER COMPANIES INC & Jul 2, 2014 & No Div & 0.15 \\ GUESS INC & Nov 28, 2012 & a special \$1.20-a-share dividend \end{tabular} AARt=N1i=1NARit for N stocks. CAAR=t=t1t2AARt