Using Dummy Variables in the Event Methodology

ABSTRACT In this paper, the author outlines a dummy variable technique that is a convenient procedure for obtaining cumulative prediction errors and related test statistics. By appending a vector of (0,1) dummy variables to the right‐hand side of the market model, results usually obtained in two steps can be obtained in a single multiple regression. The primary advantage of this technique is that both prediction errors and correct test statistics may be obtained from any standard regression package.