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The massive real-estate price increases experienced in Israel over the last several years have elicited in policymakers the realization that they need to take action to reduce housing demand and prevent the Israeli housing market from collapsing. As a result, during May and October 2010, the Bank of Israel stepped in and increased the effective rate on mortgages and lowered the number of qualified applicants. In announcing the new regulations, the Bank of Israel’s main objective was to halt rising demand and to prevent further growth of the housing bubble. We use event study analysis to show that not only did the new regulations have no effect on housing prices but they in fact also markedly influenced the market value of the real-estate companies traded on the Tel-Aviv stock exchange.

Our goal in this chapter is to point out potential problems associated with applying conventional event study methodology to corporate governance studies (CG). It can be viewed as a nontechnical reference for those who want to conduct an event study but are not yet familiar with the subject matter. To our knowledge, existing works that address the methodological problems of event studies or provide insightful reviews of published methods are highly technical and are suitable mainly for advanced readers. This chapter deals mainly with techniques for examining short-term price changes at the time of the event, while describing methods for analyzing price movements over a long period after the event.

Existing evidence from simulations and empirical studies suggests that the short time horizon tests appear to be more robust to potential statistical problems.