Interpreting Event-Studies from Recent Difference-in-Differences Methods

TL;DR

This paper examines how recent difference-in-differences methods produce event-study plots that differ from traditional TWFE plots, highlighting interpretational differences and providing practical guidance.

Contribution

It clarifies the interpretation issues of event-study plots from new difference-in-differences methods and offers practical recommendations for their construction and analysis.

Findings

Recent methods produce asymmetric pre- and post-treatment coefficients.

Event-study plots may show kinks or jumps not present in traditional TWFE plots.

Visual heuristics from TWFE plots should not be directly applied to new methods.

Abstract

This note discusses the interpretation of event-study plots produced by recent difference-in-differences methods. I show that even when specialized to the case of non-staggered treatment timing, the default plots produced by software for several of the most popular recent methods do not match those of traditional two-way fixed effects (TWFE) event-studies. The plots produced by the new methods may show a kink or jump at the time of treatment even when the TWFE event-study shows a straight line. This difference stems from the fact that the new methods construct the pre-treatment coefficients asymmetrically from the post-treatment coefficients. As a result, visual heuristics for evaluating violations of parallel trends using TWFE event-study plots should not be immediately applied to those from these methods. I conclude with practical recommendations for constructing and interpreting event-study plots when using these methods.