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

Question

Quizplus · Accepted Answer

The cumulative abnormal return (CAR) is calculated by summing the differences between the stock's returns and the market's returns for each day. For Taylor Mfg., the daily abnormal returns are: Day 1: −.1 − .1 = −.2% Day 2: .2 − .3 = −.1% Day 3: .1 − (−.4) = .5% Day 4: .2 − .4 = −.2% Day 5: .3 − .2 = .1% Summing these gives: −.2 − .1 + .5 − .2 + .1 = .1%. Therefore, the cumulative abnormal return is .1%.

Over the Past Five Days, the Common Stock of Taylor