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Stock returns after major price shocks: The impact of information

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  • Savor, Pavel G.

Abstract

This paper focuses on stocks that experience major price changes. Using analyst reports as a proxy, I find that price events accompanied by information are followed by drift, while no-information ones result in reversals. One interpretation of these results is that investors underreact to news about fundamentals and overreact to other shocks that move stock prices. Consistent with this hypothesis, information-based price changes are more strongly correlated with future earnings surprises than no-information ones. Furthermore, drift exists only when the direction of the price move and of the change in analyst recommendations have the same sign. Finally, the ratio of no-information to information-based price shocks is strongly correlated with aggregate implied volatility and also forecasts momentum returns.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 106 (2012)
Issue (Month): 3 ()
Pages: 635-659

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Handle: RePEc:eee:jfinec:v:106:y:2012:i:3:p:635-659

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Web page: http://www.elsevier.com/locate/inca/505576

Related research

Keywords: Predictability of stock returns; Information; Analyst reports; Momentum reversals;

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References

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Cited by:
  1. Peter Koudijs, 2013. "The boats that did not sail: Asset Price Volatility and Market Efficiency in a Natural Experiment," NBER Working Papers 18831, National Bureau of Economic Research, Inc.

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