One For All or All For One? Using Multiple-listing Information in Event Studies
In an event study where at least some of the sample firms have their equity securities listed in more than one market, the question arises as to which is the most appropriate market (or markets) to use for the purpose of estimating average abnormal returns. When arbitrage activity across these markets is restricted in some way, estimating abnormal returns from just one of the listings potentially throws away valuable information. On the other hand, indiscriminate pooling is likely to result in the same information being counted more than once. We develop a Generalized Least Squares estimator that (i) uses all the information available from multiple listings, (ii) ‘downweights’ listing observations that provide little new information, and (iii) yields efficient abnormal return estimates. Finally, we apply this generalized approach to a unique sample of Chinese foreign mergers and acquisitions and compare that the results with conventional estimates of mean abnormal returns.