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  • Fama-French 3 Factor Event study and Methodology

    Dear Statalist,

    I have conducted an event study of the FTSE350 over the period 1988-2016, considering 70 events. Following on from the previous thread ( I am trying to run a Fama-French 3 Factor model to estimate normal performance (instead of the market model). Is the following code appropriate? (rmrf = Market Return- Risk Free Return, rf = Risk Free Return)

    Original coding 'Market model'
    gen ret2use = ret if w_estim
    rangestat (reg) ret2use market_return, interval(group_id 0 0)
    gen p_return = b_market_return * market_return + b_cons if w_event
    Replacement Fama-French 'Economic model'
    gen ret2use = ret if w_estim
    rangestat (reg) ret2use rmrf smb hml, interval(group_id 0 0)
    gen p_return = rf + b_rmrf * rmrf + b_smb * smb + b_hml * hml + b_cons if w_event
    Secondly, my aim is then having calculated the abnormal returns for each day, to rank the individual stocks according to their AR on the event day, and construct portfolios from the top (winner) and bottom (loser) deciles. The contrarian strategy return (long the winners, short the losers) can then be measured by the average cumulative abnormal return over the event window. Would this be achievable in stata or do i have to pull the data out to excel?

    Thank you