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Stock price reaction following large one-day price changes: UK evidence

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  • Mazouz, Khelifa
  • Joseph, Nathan L.
  • Joulmer, Joulmer
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    Abstract

    We examine the short-term price reaction of 424 UK stocks to large one-day price changes. Using the GJR-GARCH(1,1), we find no statistical difference amongst the cumulative abnormal returns (CARs) of the Single Index, the Fama-French and the Carhart-Fama-French models. Shocks [greater-or-equal, slanted]5% are followed by a significant one-day CAR of 1% for all the models. Whilst shocks [less-than-or-equals, slant]-5% are followed by a significant one-day CAR of -0.43% for the Single Index, the CARs are around -0.34% for the other two models. Positive shocks of all sizes and negative shocks [less-than-or-equals, slant]-5% are followed by return continuations, whilst the market is efficient following larger negative shocks. The price reaction to shocks is unaffected when we estimate the CARs using the conditional covariances of the pricing variables.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 33 (2009)
    Issue (Month): 8 (August)
    Pages: 1481-1493

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    Handle: RePEc:eee:jbfina:v:33:y:2009:i:8:p:1481-1493

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Price shocks Overreaction Return continuations Pricing factors GJR-GARCH(1; 1) Conditional covariances;

    References

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    Cited by:
    1. Choudhry, Taufiq, 2010. "World War II events and the Dow Jones industrial index," Journal of Banking & Finance, Elsevier, vol. 34(5), pages 1022-1031, May.
    2. Marshall, Ben R. & Visaltanachoti, Nuttawat, 2010. "The Other January Effect: Evidence against market efficiency?," Journal of Banking & Finance, Elsevier, vol. 34(10), pages 2413-2424, October.
    3. Kapetanios, George, 2009. "Testing for strict stationarity in financial variables," Journal of Banking & Finance, Elsevier, vol. 33(12), pages 2346-2362, December.
    4. Chen, Crystal Xiaobei & Rhee, S. Ghon, 2010. "Short sales and speed of price adjustment: Evidence from the Hong Kong stock market," Journal of Banking & Finance, Elsevier, vol. 34(2), pages 471-483, February.
    5. Jaiswal-Dale, Ameeta & Jithendranathan, Thadavillil, 2009. "Transmission of shocks from cross-listed markets to the return and volatility of domestic stocks," Journal of Multinational Financial Management, Elsevier, vol. 19(5), pages 395-408, December.

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