The "Standard Error" of Event Studies: Lessons from the 2016 Election
AEA Papers and Proceedings
vol. 108,
May 2018
(pp. 584-89)
Abstract
The 2016 Election offers an unusually stark warning about the limitations of event studies. In four separate pre-election event windows, financial market responses to shifts in electoral probabilities were consistent with expectations that a surprise Trump win would lead the S&P 500 to fall by 11 percent. The initial decline that accompanied Trump's win was more than reversed on the day after the election, however, suggesting a reassessment of its expected effect. We discuss explanations for this reassessment. But our broader point is methodological: today's event study may not reveal tomorrow's market expectation.Citation
Wolfers, Justin, and Eric Zitzewitz. 2018. "The "Standard Error" of Event Studies: Lessons from the 2016 Election." AEA Papers and Proceedings, 108: 584-89. DOI: 10.1257/pandp.20181090Additional Materials
JEL Classification
- D72 Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- G14 Information and Market Efficiency; Event Studies; Insider Trading