Event study
How do traders measure whether prices reacted to a specific dated event, rather than to everything else happening at once?
In plain words
An event study compares a market's price behaviour in a window around a known date with what would have been normal without that date. Researchers estimate a baseline return, then measure the gap between the actual move and that baseline in the days before and after the event.
Why it matters
Markets move for many reasons at once. Isolating the portion of a move attributable to one dated event helps a risk-taker judge whether a price change is a lasting repricing or a brief reaction that fades, and how large the reaction was relative to ordinary weeks.
In a real week: ETH, week of 21 March 2022
ETH rose 15.18% in the week starting Monday 2022-03-21, from an open of 2861.39 to a close of 3295.65, placing the return at the 87th percentile of 214 weeks of history. An event study would compare this week's move with the four prior weeks, which returned -0.2%, -2.5%, -1.4% and 13.74%, to separate any dated-event effect from the recent drift.
A common mistake
Assuming every large move around an event is caused by that event. Prices can be pushed by broader market conditions at the same time, which is why a baseline comparison is needed.