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Divergence of Opinion Surrounding Extreme Events

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  • Tim Loughran
  • Jennifer Marietta-Westberg
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    Abstract

    "This paper examines the stock market performance of a large sample of new issues (IPOs and SEOs) following an extreme price movement during the first three years after the offering. Strong underperformance follows either a positive or negative (at least +/ - 15%) one-day return event. This poor performance cannot be explained by the Fama-French four-factor methodology, or by the generally low stock returns of growth firms. Unlike recent issuers, non-issuers report no poor performance following a similar extreme event using the four-factor methodology. The extreme event date shows very high levels of turnover, a measure of divergence of opinion. Finally, there is a strong negative linkage between higher levels of divergence of opinion and subsequent stock performance". Copyright Blackwell Publishers Ltd, 2005.

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    Bibliographic Info

    Article provided by European Financial Management Association in its journal European Financial Management.

    Volume (Year): 11 (2005)
    Issue (Month): 5 ()
    Pages: 579-601

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    Handle: RePEc:bla:eufman:v:11:y:2005:i:5:p:579-601

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    Cited by:
    1. Christian Weiner, 2005. "The Impact of Industry Classification Schemes on Financial Research," SFB 649 Discussion Papers SFB649DP2005-062, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    2. Alexandridis, George & Antoniou, Antonios & Zhao, Huainan, 2008. "Belief asymmetry and gains from acquisitions," Journal of Multinational Financial Management, Elsevier, Elsevier, vol. 18(5), pages 443-460, December.
    3. Doukas, John A. & Kim, Chansog & Pantzalis, Christos, 2006. "Divergence of opinion and equity returns under different states of earnings expectations," Journal of Financial Markets, Elsevier, Elsevier, vol. 9(3), pages 310-331, August.

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