1. Background An event study is an empirical analysis that examines the impact of a particular event ‘on the value of a subject. This ta: employs this method to assess the effect of the Australian gevernment announcements on returns of the Australian Stock Exchange (ASX) Global Industry Classification Standard (GICS) Sectors. Returns data of six sectors is provided with announcement dates from September 2019 to December 2021. In particular, you are required to compute the cumulative abnormal returns (CARy) of each stock given its announcement date and the cross-sectional average of the cumulative abnormal return CAR, of the portfolio. ‘There are a number of models and methods to determine the expected retums and undertake such event study. Below are specific instructions for you to complete the task. First, for each announcement date, t, estimate the expected returns #y and the abnormal returns &4, by using the market model (1), assuming that those assumptions under the market model are satisfied. ra = 2+ Bates +8: (V) @¢; and’ are obtained by running the regression madel (1) using-stock returns during the estimation period for that announcement date. Second, the announcement date is defined as day 0, The estimation period goes from day 110 to day 1=—10 (both days inclusive), while the event window goes from day t=—1 to day = 10 (both days inclusive)Third, the cumulative abnormal returns (CARs) of each stock on its announcement date are computed as follows: CAR, = Lief @) Last, the eros cctional average of the cumulative abnormal return (CAR) of the port folio is computed by the formula: CAR, =~ Liz-1CARy @) More information about event studies can be found here: Eekho, B. E.(Ed.). (2008). Handbook of empirical corporate finance set. Elsevier Chapter | - Econometries of Event Studies. MacKinlay, A.C. (1997). Event studies tn ecanamies andt finance. Journal of econemie literature, 35(1), 13-39. 2. Spreadsheet Guidance You are provided the daily returns of 6 GICS sectors from 3 September 2019 to 31 December 2021 in the spreadshect named “PEAD”. This shect (only} will be marked. With the given (sector and market) returns data and announcement dates, two functions have been (poorly) written in the Modulel, following the instructions in the Background session, to compute the (CARj) of cach sector and the (CAR) of the portfolio. ‘Therefore, after fixing the provided code for the two functions, you will need to eall the funeti to compute the (CARs) of each sector in the first 6 green cells and call the function to compute the (CAR, of the portfolio in the last green cell as shown in the attached picture below. ‘The function to compute the (CARs) of cach sector in the first 6 green cells will have the form as: CAR(StockRet, MarketRet, Eventdate, Dates) Where: * StockRet is the one-dimensional array storing returns of each sector and alreadylabelled in the Spreadsheet by the stock ticker, for example XEJ, XMJ, ANI ste, + Marketer is the one-dimensional array storing days and already labelled in the Spreadsheet as mares the market returns for the given + Evenidate is the event date of each stock and given in the column above the green cells as in the picture. . + Dates is the one-dimensional array storing all the available dates including the estimation period, event window, and days outside these two periods, and already labelled as cures in the Spreadsheet. + mrktret and dates are the same for all stocks. For example, the function will be called to compute the (CAR) of sector XE: CAR(XES, mvkiret, Referonce Cell fog: R7), dates) and the function to compute the (CAM) of the portfolio in the last green cell will have the form: PortfoliCAR(AIICAR) Where: AIICAR is the area storing all the CAR of 6 sectors and labelled as AIICAR, Note: The addition sheet named “Unlocked for Presentation” provides the same tet of data for you to practice and debug your code/functions,3. Assessment The cade to create the two required functions for this task is already provided to you in the Modulel, but it is very poorly written and unable to be processed straightaway. ‘Your job is to fix and improve the code. ‘You will be assessed across Week 11 and 12 on those criteria shown in the Marking Guide jor Final Assessment, including the quality of your solutions and your ability to enter into an informative discussion, QA in week 11 (5 minutes): Focused on your understanding of the idea (similar to a cade plan), including but not limited to: 1. Demonstrate your understanding of the problem. You may like to prepare a decision tree and/or write a code plan 2. Outline the errors in the function. Please be mindful if'any event date falls. on 3 weekend. Suggest ways to avercome the problem. 3. Propose methods to improve the efficiency of the code. 4, Suggest recommendations on what you think may be done to optimise the function. Presentation in week 12 (5 minutes) Focused on the code and solution quality: 1. The quality of your code with respect to the general marking guide posted on Moodle. 2. Explain the issues and improvements you have made. ‘Spreadsheet submission in week 12: 1, The automatic marking software will mark the "PEAD” worksheet and the functions. 2. You should not modify the structure of the "PEAD” worksheet, change the functions name or the order of its input parameters.