Anticipated versus Realized Benefits

Economists often use event study methodology to evaluate the impact of new regulations on firms before there is enough data to empirically estimate the effects. This research investigates the degree to which event study methodology can provide useful information in this regard by studying how accurately markets predict the actual benefits associated with a new law. Specifically, I utilize a unique change in U.S. 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 new 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. Classification Code: F13