Energy Project Financing : Resources and Strategies for Success

124 Energy Project Financing: Resources and Strategies for Success

The average abnormal return (AARt) for a specific event date is the

mean of all the individual firms’ abnormal returns for that date:

AARt=Σ ABRjt ⁄N

j= 1

Ν

where N is the number of firms used in the calculation.

The cumulative average abnormal return (CAAR) each interval for

is calculated as follows

CAART 1 T 2 =ΣAARt

T 1

T 2

The standardized residual method is used to determine whether

the abnormal return is significantly different from zero. The standard-

ized abnormal return (SARjt) is calculated as follows:

SARjt = ABKjt/sjt

where

sjt = the standard deviation of security j’s estimation period

variance of its ABRjt’s.

The estimation period variance s^2 jt, is calculated as follows

sjt^2 =s^2 j 1 + 1⁄Dj+ Rmt–Rm^2 ⁄Σ Rmk–Rm^2

k= 1

Dj

sj^2 =kΣ= 1 ABR^2 jk

Dj

⁄ Dj– 2

Where

Rm = the mean market return over the estimation period, and