I am quite confused about the definition of an event study. From my understanding, an "event study" is when we examine the impact of an event (e.g., a law) on a dependent variable (e.g., asset growth).
However, can we call the staggered implementation of laws an "event study"? I mean, for example, we examine the impact of a law being implemented at different times by different countries on firms' assets growth.
Event study is actually not just a study of some event, almost any study studies events as broadly defined (e.g. in any diff-in-diff you will have an important event which will be considered to be treatment, but diff-in-diff is not an event study).
Event study is name for a specific methodology for studying events which is primarily used in the field of finance (although you can find non-financial applications in the literature as well). Following the seminal work of MacKinlay (1997) on event studies an event study studies impact of identifiable event or events with the following steps:
The initial task of conducting an event study is to define the event of interest and identify the period over which the security prices of the firms involved in this event will be examined-the event window. For example, if one is looking at the information content of an earnings with daily data, the event will be the earnings announcement and the event window will include the one day of the announcement. It is customary to define the event window to be larger than the specific period of interest. This permits examination of periods surrounding the event. . In practice, the period of interest is often expanded to multiple days, including at least the day of the announcement and the day after the announcement. This captures the price effects of announcements which occur after the stock market closes on the announcement day. The periods prior to and after the event may also be of interest. For example, in the earnings announcement case, the market may acquire information about the earnings prior to the actual announcement and one can investigate this possibility by examining pre-event returns.
After identifying the event, it is necessary to determine the selection criteria for the inclusion of a given firm in the study. The criteria may involve restrictions imposed by data availability such as listing on the New York Stock Exchange or the American Stock Exchange or may involve restrictions such as membership in a specific industry
Appraisal of the event's impact requires a measure of the abnormal return. The abnormal return is the actual ex post return of the security over the event window minus the normal return of the firm over the event window. The normal return is defined as the expected return without conditioning on the event taking place.
This can be done in various different ways. However, generally you will have to select some estimation window based on which you create an auxiliary model that will tell you what a normal returns should be during the event and then abnormal returns are just the difference between normal estimated and observed ex-post returns.
Next comes the design of the testing framework for the abnormal returns. Important considerations are defining the null hypothesis and determining the techniques for aggregating the individual firm abnormal returns.
Once you calculate your abnormal returns its important to test somehow to see if these are significant. Again there are various ways how to do that, often you see people testing whether the abnormal returns are statistically significantly different from zero using normal or $t$ distribution.
You can have further look at some student friendly explanation of event study methodology in Brooks Introductory Econometrics for Finance pp640. Also, note most sources do not break the methodology into 4 distinct steps and just present it as a whole, I just broken it down into 4 steps so its easier to follow, but its all part of single methodology.
PS: Note the terminology might not be always used consistently across different fields/subfields, but in economics when we talk about event studies it is typically the above.
