Zunda Winston Xu
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Zunda Winston Xu
@winstonxu.bsky.social
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PhD candidate in Finance @StanfordGSB | Interested in Innovation and Technology Adoption, Financial Intermediation and Regulation.
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Reposted by Zunda Winston Xu
paulgp.com
Wrote a new paper on the econometrics of financial event studies, would value feedback! It's very new.

With my amazing grad student Tianshu Lyu www.tianshulyu.com, who is on the market. You should hire him!

paulgp.com/papers/finan...
Financial event studies, ubiquitous in finance research, typically use linear factor models with known factors to estimate abnormal returns and identify causal effects of information events. This paper demonstrates that when factor models are misspecified an almost certain reality traditional event study estimators produce inconsistent estimates of treatment effects. The bias is particularly severe during volatile periods, over long horizons, and when event timing correlates with market conditions. We derive precise conditions for identification and expressions for asymptotic bias. As an alternative, we propose synthetic control methods that construct replicating portfolios from control secu rities without imposing specific factor structures. Revisiting four empirical applications, we show that some established findings may reflect model misspecification rather than true treatment effects. While traditional methods remain reliable for short-horizon studies with random event timing, our results suggest caution when interpreting long-horizon or volatile-period event studies and highlight the importance of quasi experimental designs when available.
November 19, 2025 at 4:43 AM