Evaluation of Buy and Hold Approach in Long-Run Event Studies

In the event studies, the measurement of abnormal performance due to specific events in the long run is done according to different methods. One of them is the buy and hold approach. This approach uses match firm and reference portfolio. The aim of this study is to evaluate the buy-and-hold approach in performance measurement with emphasis on long-term horizon.

In this study, based on the data of 131 firms in the period of 1396-1381, the methods of the match firm and reference portfolio were assessed through simulation.

Findings show that increasing the time interval from one year to three and five years will lead to an appropriate imbalance between the specification and the power of the tests to be examined.

following the event, if the long-run performance appraisal of stock prices, the one-year period, and to measure abnormal returns, the match firm method should be taken into account. The results of this study also indicate that use of accounting and financial variables in determining match firm and reference portfolio will lead to specification and power of the tests used.

Contribution: 

The findings can be used as a basis for evaluating long-run stock performance