Measuring Abnormal Return in Trading Halt Condition

After Beaver (1968), Ball and Brown (1968) and Fama et al. (1969), event study methodology has been extensively used in finance and accounting research. This method concentrates on measuring abnormal performance of financial assets caused by a special event. Although event study methods are well developed and often used to test financial theories for the US and other well-established stock exchanges, there is some concern regarding efficiency when applied to small stock exchanges dominated by thinly traded stocks (i.e. stocks that do not trade every day). In small stock markets (including Tehran Stock Exchange) there is hardly, continuous daily price data for many shares. This problem is one of the limitations while using standard event study methodology and as a consequence, the results are widely affected by this restriction. Maynes and Rumsey’s (1993) study of thin, moderate, and thickly traded Canadian stocks provides a good framework for conducting event studies on a small stock exchange. In this study, we develop trade to trade method in order to measure abnormal returns. Tehran Stock Exchange trading status is analyzed over the ten-year period1380 to 1389. Finally, the results of applying this method to estimate the market model are compared with the results of lumped return method. We find that explaining power of market model under the trade to trade method for thin and medium trading shares is well better than lumped return.