Question

Franklin Mills announced at Timet that it just sold its worst performing division. There were no other announcements affecting the firm. The firm's stock had daily returns of -0.2, 0.1, 0.4-0.1, +0.2 for Timet - 2 to Timet + 2, respectively. The daily returns on the market were -01, 02, 03,-0.2 and 0.2 for Timet - 2 to Timet + 2. respectively. What is the cumulative abnormal return for these 5 days?

Answer 1

Given data as follows:

Franklin Mills stock has daily returns -0.2,+0.1,+0.4,+0.2

Daily returns on market were -0.1,+0.2,+0.3,-0.2 ,+0.2

now,

abnormal returns = Stock returns - benchmark returns.

Franklin mills	Market	Abnormal Returns
-0.2	-0.1	-0.1
0.1	0.2	-0.1
0.4	0.3	0.1
-0.1	-0.2	0.1
0.2	0.2	0

The cumulative abnormal Returns for these 5 days is = -0.1+(-0.1)+0.1+0.1+0=0.