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News Events, Information Acquisition, and Serial Correlation

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Author Info

  • Craig W. Holden

    (Indiana University)

  • Avanidhar Subrahmanyam

    (University of California, Los Angeles)

Abstract

We develop a model that accounts for medium-term continuation (momentum) in asset returns by analyzing information acquisition about news events (such as earnings announcements) in a multiperiod setting. As more and more agents become informed about news events, temporal uncertainty is resolved endogenously through market prices over time, which leads to positive autocorrelations in asset returns. We empirically estimate serial correlations over medium-term horizons for portfolios sorted by firm size and past stock performance and find that calibration of serial correlations in our model spans the range of empirically estimated correlations.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 75 (2002)
Issue (Month): 1 (January)
Pages: 1-32

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Handle: RePEc:ucp:jnlbus:v:75:y:2002:i:1:p:1-32

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Web page: http://www.journals.uchicago.edu/JB/

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References

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Cited by:
  1. Steven L. Heston & Robert A. Korajczyk & Ronnie Sadka, 2010. "Intraday Patterns in the Cross-section of Stock Returns," Journal of Finance, American Finance Association, vol. 65(4), pages 1369-1407, 08.
  2. Darrat, Ali F. & Zhong, Maosen & Cheng, Louis T.W., 2007. "Intraday volume and volatility relations with and without public news," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2711-2729, September.
  3. Andrade, Sandro C. & Chang, Charles & Seasholes, Mark S., 2008. "Trading imbalances, predictable reversals, and cross-stock price pressure," Journal of Financial Economics, Elsevier, vol. 88(2), pages 406-423, May.
  4. Manela, Asaf, 2014. "The value of diffusing information," Journal of Financial Economics, Elsevier, vol. 111(1), pages 181-199.
  5. Chuang, Wen-I & Lee, Bong-Soo, 2006. "An empirical evaluation of the overconfidence hypothesis," Journal of Banking & Finance, Elsevier, vol. 30(9), pages 2489-2515, September.
  6. García, Diego & Urošević, Branko, 2013. "Noise and aggregation of information in large markets," Journal of Financial Markets, Elsevier, vol. 16(3), pages 526-549.
  7. Albuquerque, Rui & Miao, Jianjun, 2007. "Advance Information and Asset Prices," CEPR Discussion Papers 6588, C.E.P.R. Discussion Papers.
  8. Lesmond, David A. & Schill, Michael J. & Zhou, Chunsheng, 2004. "The illusory nature of momentum profits," Journal of Financial Economics, Elsevier, vol. 71(2), pages 349-380, February.
  9. Chordia, Tarun & Subrahmanyam, Avanidhar, 2004. "Order imbalance and individual stock returns: Theory and evidence," Journal of Financial Economics, Elsevier, vol. 72(3), pages 485-518, June.
  10. Subrahmanyam, Avanidhar, 2009. "Optimal financial education," Review of Financial Economics, Elsevier, vol. 18(1), pages 1-9, January.

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