Event Studies and Statistical Inferences

There's a fascinating debate taking place in the comments of this post over at Larry Ribstein's Ideoblog.  At issue is $1.4 trillion -- the estimated loss in total market value of firms around legislative events leading to the passage of Sarbanes-Oxley.  This figure was calculated by Ivy Xiying Yang in her paper, "Economic Consequences of the Sarbanes-Oxley Act of 2002."  Ribstein takes the figure as representative of the market losses caused by Sarbanes-Oxley.  But in the comments, William Goodwin and John Coates dispute this figure, arguing that Zhang's study cannot prove any link between the Act and a $1.4 trillion loss.

The debate is a fairly nuanced discussion not only of Zhang's particular event study, but of event studies as a whole (including Kate Litvak's recent paper).  It's particularly useful as we focus more on quantitative empirical results in legal scholarship.  Can event studies ever really tell us the effects of world events on stock prices?  Check out the debate.