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Define the standardized prediction error as

(8.7)

Under the null hypothesis, each SPE

jt

follows the student’s t distribution with

D

j

− 2 degrees of freedom. Summing the SPE

jt

across the sample, gives

(8.8)

The expected value of TSPE

t

is zero. The variance of TSPE

t

is

(8.9)

The test statistic for the null hypothesis that is

(8.10)

where

(8.11)

and

(8.12)

Under cross-sectional independence of the and other conditions (see Patell,

1976), follows the standard normal distribution under the null hypothesis.

VI. ANNOUNCEMENT PERIOD EFFECTS

Figure 8.1 and Table 8.2 depict cumulative average prediction errors (CAPEs)

(or cumulative abnormal returns, CARs) during the announcement ...