On February 25, 2014, company A announced the acquisition of company B for a total of $16 billion. The dividend-adjusted stock prices of Company A on the days around the announcement are listed below in Table 1. The covariance between the return from firm A and the return from S&P500 is 0.0095%, the variance of the return from the S&P500 is 0.0071% and the alpha of company A is 0.2327%.

1. Calculate the beta of firm A.

2. Calculate the abnormal return (AR) for Company A on February 25, 2014.

3. Calculate the Cumulative abnormal return (CAR) for company A starting:

(i) 3 days before the announcement and considering the 3 days after the announcement: CAR(-3,3);

(ii) 1 day before and 1 day after the announcement CAR(-1,1). Please consider only the days listed below and do not take into account if one or more days in the event window are missing.

4. Critically discuss your results and the problem of information leakage in event studies.

Table 1 Date Firm A S&P 500 71.57 1873.81 68.80 1873.91 67.41 1845.73 68.46 1859.45 68.94 1854.29 69.26 1845.16 69.85 1845.12 70.78 1847.61 68.59 1836.25 69.63 1839.78 05/03/14 04/03/14 03/03/14 28/02/14 27/02/14 26/02/14 25/02/14 24/02/14 21/02/14 20/02/14 19/02/14 18/02/14 14/02/14 13/02/14 12/02/14 11/02/14 10/02/14 07/02/14 06/02/14 05/02/14 04/02/14 68.06 1828.75 67.30 1840.76 67.09 1838.63 67.33 1829.83 64.45 1819.26 64.85 1819.75 63.55 1799.84 64.32 1797.02 62.16 1773.43 62.19 1751.64 62.75 1755.20 Table 1 Date Firm A S&P 500 71.57 1873.81 68.80 1873.91 67.41 1845.73 68.46 1859.45 68.94 1854.29 69.26 1845.16 69.85 1845.12 70.78 1847.61 68.59 1836.25 69.63 1839.78 05/03/14 04/03/14 03/03/14 28/02/14 27/02/14 26/02/14 25/02/14 24/02/14 21/02/14 20/02/14 19/02/14 18/02/14 14/02/14 13/02/14 12/02/14 11/02/14 10/02/14 07/02/14 06/02/14 05/02/14 04/02/14 68.06 1828.75 67.30 1840.76 67.09 1838.63 67.33 1829.83 64.45 1819.26 64.85 1819.75 63.55 1799.84 64.32 1797.02 62.16 1773.43 62.19 1751.64 62.75 1755.20