Abstract
The research question raised in this paper is an investigation of the effect of the announcement of US and EU sanctions on the stock returns of the targeted companies listed on the Moscow Exchange. The strategy for identification is based on firm-specific and multivariate short-term event studies. Firm-specific event study of eight sanctions that targeted 14 entities at different times results in a statistically significant ?5.4% estimate of the expected cumulative abnormal return within a window of seven trading days.
Highlights
The question of the effectiveness of the Western sanctions against Russia remains unsolved
A firm-specific event study is designed to answer the question: what is the expected pattern of cumulative abnormal returns of a company affected by a typical announcement of this particular type of event? It estimates the expectation of the cumulative abnormal return path conditional on the event window around a typical announcement
The average effect is measured as the estimate of the expected cumulative abnormal return within a window of seven trading days after a sanction announcement and amounts to ‒5.4%
Summary
The question of the effectiveness of the Western sanctions against Russia remains unsolved. Event study methodology is designed to identify the short-term average cumulative impact of an event on the equity returns of the public companies that were directly or indirectly affected by the event. A firm-specific event study is designed to answer the question: what is the expected pattern of cumulative abnormal returns of a company affected by a typical announcement of this particular type of event (announcement of sanctions)? It estimates the expectation of the cumulative abnormal return path conditional on the event window around a typical announcement. The question raised by a multivariate event study is different: what is the expected pattern of cumulative abnormal returns of a company affected by the event under consideration? It estimates the expected cumulative abnormal return path conditional on a particular event.
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