Cross-sectional t test & standard deviation (event study caar)

[Lukas Golaco]

Dear all,

I've got a question regarding the cross-sectional t-test when determining the significance of CAAR in an event study (market model) with a sample of 538 transactions. When calculating the standard deviation of CAAR with the following formula, I am not sure about the degree of freedoms:

How would the first part of this equation look like: 1) =sqrt(1/(538(538(538-536))*sum...), or 2) =sqrt(1/(538(538(538-2))*sum...), or even different?
I know that this might be a stupid question but I am kind of stuck atm and need to clarify this issue first before being able to continue with the rest of the analysis.

Thank you very much in advance!

[Phil Bromiley]

You didn't get a quick answer. You'll increase your chances of a useful response by following the FAQ on asking questions - provide Stata code in code delimiters, readable Stata output, and sample data using dataex. Remember we're mainly not from your area so terms like CAAR and CAR need to be defined.

Wherever you found the equation, you should be able to see how it defined d. If not, find another paper that explained the test. Since this is just an estimate of standard deviation, you can check it with the standard deviations calculated automatically by Stata.

Without more about your set up, I can't tell for sure, but I would expect that one of the tests or t tests provided in Stata would handle your problem.