A researcher finds evidence of a security price reaction to an item of accounting information during a
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Question:
A researcher finds evidence of a security price reaction to an item of accounting information
during a narrow window of three days surrounding the release date of this information in
which no other significant events affected the firm, and claims that the accounting information
caused the security price reaction. Another researcher finds evidence of security
price reaction to a different item of accounting information during a wide window beginning months prior to the release of the financial statements containing that item.
This researcher does not claim that the accounting information caused the security price
reaction, but only that the information and the market price reaction were associated.
Explain why a researcher can claim causation for a narrow window but not for a wide
window. Which price reaction constitutes the stronger evidence for usefulness of accounting
information? Explain.
Expert Answer:
In the case of the narrow window where the price reaction occurs specifically around the release dat... View the full answer
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