Post merger profitability analysis of shareholders. Evidence from ...

estimations, the ordinary least squares (OLS) regression method is
applied as it is unbiased and efficient. The regression produces
estimates of and , which are and .
The predicted return for a firm for a day in the event period and
post-event period is the return given by the market model on that
day using these estimates. The univariate regression is performed
with Microsoft Excel. Properties of potential abnormal returns are
conditional on the hypothesis that abnormal returns are zero.
In order to capture share prices net of these abnormal
price movements, announcement prices are compared to pre-bid
prices. The possible abnormal return is calculated by
Fama’s approach (1997) is followed, which recommends either to
average abnormal returns (AARs) or to sum cumulative abnormal
returns (CARs). The final step is to cumulate the average residual
for each day over the entire event period to produce the cumulative
average return. The cumulative average residual method (CAR)
uses as the abnormal performance measure the sum of each day’s
average abnormal performance. The CAR, AAR and CAAR formulas
are derived from Agrawal et.al (1992) and are defined as:
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