Cumulative Abnormal Returns Delta, United, and American Airlines announced , and

Question

Cumulative Abnormal Returns Delta, United, and American Airlines announced , and October 7 (10/7). ely. Given the following information, calculate cumulative abnormal return an explanation. All of the 1. purchases of planes on July 18 (7/18), February 1- 2) (CAR) for these stoc. a group. Graph the result and prov stocks have a beta of 1, a o other announcements are made. Delta United American Market Company Market Comp Market Company 0 Date Return Return Date Return Return Date Return Return 7/12 3 i0/I 10/2 0/3 I.I 10/6 2/9 101.1 2/10 I.I 2/12 310/72.2 7/18 2.2 7/19-.9 7/20-1.0 10/8 0/9 10/103 10/13 2/15 I.I 2/165 7/24 2/18 3

Explanation / Answer

Abnormal return of a company is excess return above expected return.

In this case since beta is 1 for all the companies so expected return for all of them will be equal to market return.

Abnormal return for Delta = 1.1 -(-2.2) = 3.3

Abnormal return for United = -0.1 -(-0.3) = 0.2

Abnormal return for American = -0.3 -(-2.2) = 1.9

So as a group cummulative abnormal return will be 3.3+0.2+1.9 = 5.4

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