The common stock of Kimberlee Mfg. had daily returns of .2, −.1, .5, .4, and .3 percent, over the past five days, respectively. For the same five-day period, the market had daily returns of .1, .3, −.2, .5, and .1 percent, respectively. What is the cumulative abnormal return on Scott Mfg. stock for this time period?
A)−.5%
B)−.2%
C).0%
D).2%
E).5%

Question

Quizplus · Accepted Answer

The cumulative abnormal return (CAR) is calculated by subtracting the market return from the stock return for each day and then summing these differences. The daily abnormal returns are: 0.2 - 0.1 = 0.1, -0.1 - 0.3 = -0.4, 0.5 - (-0.2) = 0.7, 0.4 - 0.5 = -0.1, 0.3 - 0.1 = 0.2. Summing these gives 0.1 - 0.4 + 0.7 - 0.1 + 0.2 = 0.5%.

The Common Stock of Kimberlee Mfg