Event Study Buy and Hold abnormal returns computation

**Anda27** · 02-14-2018, 07:29 PM

Following this formula 𝐵𝐻𝐴𝑅𝑖𝑡 = ∏[1 + 𝑅𝑖𝑡] −∏ [1 + 𝐸(𝑅𝑖&#119905

] using the below data

Date 19/03/2014 Price 95.65 Return 1.0054

Date 20/03/2014 Price 96.17 Return 1.0013

Date 21/03/2014 Price 96.3 Return 0.9983

the ∏[1 + 𝑅𝑖𝑡] equals simply the return (1.0054*1.0013*0.9983) or is it (2.0054*2.0013*1.9983) since there is a "1+" in the equation?? I am so confused because I have seen people not adding the 1 up, just using the regular return and compounding it. Then what is the point of the "1+" in the formula?

Many thanks for your help and clarification in advance.

**ben_hensel** · 02-14-2018, 08:02 PM

Welcome to the forum!

However, this isn't actually an Excel question, so it is outside the purview of the board.

That being said,
PI [math]
means you do the "math" for each term of the algorithm.

So
PI[1 +x] for x = {1, 2, 3}
would be:
(1 + 1) * (1 + 2) * (1 + 3) = 2*3*4 = 24

Other usages are technically wrong somehow; either they are just making an arithmetical error, or they are not using the correct nomenclature to describe what they're doing.