Anticipated vs Realized Benefits: Can Event Studies be used to Predict the Impact of New Regulations

Economists use event studies to evaluate the impact of new regulations before there are enough data to empirically estimate the effects. This research investigates how accurately event studies and financial markets predict the benefits associated with a new law. Specifically, I utilize a change in US antidumping law known as the Byrd Amendment to compare the benefits predicted by event study methodology with the actual benefits accruing to individual firms under the law. The results illustrate why researchers who utilize event studies should be cautious when interpreting their results as estimates of the true impact of a regulatory change. Eastern Economic Journal (2008) 34, 310–324. doi:10.1057/palgrave.eej.9050036