Event Study Abnormal Return

Problem

Compute event-study abnormal returns given actual returns, market returns, and a market model with parameters alpha and beta: abnormal[t] = returns[t] - (alpha + beta * market[t]).

Return the list of abnormal returns.

Hint

The expected return comes from the fitted market model, not the raw market return.

Test cases

case 1

in: [[0.02,0.03],[0.01,0.01],0,1]

expected: [0.01,0.019999999999999997]

case 2

in: [[0.05],[-0.02],0.01,0.5]

expected: [0.05]

case 3

in: [[0,0],[0,0],0.01,0]

expected: [-0.01,-0.01]

case 4

in: [[0.1,-0.1],[0.05,-0.05],0,2]

expected: [0,0]

Starter codePython

def event_abnormal_return(returns, market, alpha, beta):
    # Your code here
    pass

4 test cases · run your code against them in the editor