33.2 Key Assumptions

  1. Efficient Market Hypothesis: Stock prices fully reflect available information (Fama 1970).

  2. Stock Market as a Proxy for Firm Value: Shareholders are the primary stakeholders.

  3. Sharp Event Effect: The event must cause an immediate stock price reaction.

  4. Proper Calculation of Expected Returns: Requires an appropriate benchmark model.

References

Fama, Eugene F. 1970. “Efficient Capital Markets: A Review of Theory and Empirical Work.” The Journal of Finance 25 (2): 383–417.