Calculate abnormal returns over the event window by subtracting from actual returns the predicted return.

You should prepare an analyst’s report on Argentina from the perspective of an international bank.
You may make assumptions and please ensure to state what they are in the report. For instance, you could take the perspective of an international bank subsidiary operating in Argentina; you could take the position of an international bank that lends cross-border to borrowers in Argentina; you could examine the situation from a regulatory or supervisory perspective. You should state assumptions about your bank, for example, whether it is a large or small bank, retail or wholesale oriented, universal, its home country and so forth.
Each Report must start with an Executive Summary that includes a recommendation on whether or not to invest in Argentina, and states your assumptions.
The Report should consider the following:
1. An economic profile of Argentina and coverage of its recent financial history.

2. Benefits and costs associated with foreign bank entry with reference to Argentina.

3. An analysis of political risks in Argentina (check the news!).

4. An event study analysis on how the market has reacted to the election result. You should estimate market reaction to the primary election result (12 August 2019) and the election proper (28 October 2019). See below for hints and suggestions on estimating an event study.
Hints and Suggestions
1. Collect daily data for the Merval index (for Argentina) and the Dow Jones (to proxy the market). Construct daily share price returns as follows: 𝑟𝑖𝑡 = 100 ∗ log⁡ (𝑃𝑡/𝑃𝑡−1). If you prefer to calculate in Excel, us ln for natural logarithm.

2. Calculate the market model using the following regression: 𝑟𝑖𝑡 = 𝛼 + 𝛽𝑀𝑘𝑡𝑡 + 𝜀𝑖𝑡, where the dependent variable is the natural logarithm of the Merval’s daily stock price return and the independent variable is the market’s stock price return. Estimate the market model for the period from July 2018 to August 2019. Retain estimates of alpha and beta and use them to construct predicated returns on the day (or days) following the elections on 12th August and 28th October, respectively. Calculate abnormal returns over the event window by subtracting from actual returns the predicted return. Define predicted returns using the equation𝑃𝑟𝑖𝑡 =∝ ̂+ 𝛽 ̂𝑀𝑘𝑡𝑡, and abnormal returns as 𝐴𝑅𝑖𝑡 = 𝑟𝑖𝑡 − 𝑃𝑟𝑖𝑡⁡over the event window.

3. The following webpage offers a good review of event studies and associated tests, but remember you are dealing with the simplest case: http://www.eventstudytools.com/excel. This page provides a good example of how to carry out an event study with simple t-testing and using Excel. Please watch the YouTube video on conducting an event study. Click on zip-archive to download an Excel file that contains a worked example.

4. You should report if the abnormal return is statistically significant from zero on announcement date. This will formally test the null hypothesis that the abnormal return on announcement day is equal to zero against the alternative that it is not. Please see the downloaded Excel file. 5. Alternatively, Stata can perform the event study analysis. Please compile a do file. 6. Tabulate the market reactions to the election results. What do you infer from your results?