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How the Equity Market Responds to Unanticipated Events

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  • Raymond M. Brooks

    (Oregon State University)

  • Ajay Patel

    (Wake Forest University)

  • Tie Su

    (University of Miami)

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    Abstract

    We examine the market reaction of prices, volume, spreads, and trading location when firms experience events that are totally unanticipated by the equity market in terms of both timing and content. We find that the response time is longer than previous studies have reported. Selling pressure, wider spreads, and higher volume remain significant for over an hour. We also find an immediate price reaction for overnight events; however, the market takes longer to react to events that occur when it is open. These findings may shed light on the efficacy of trading halts.

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    Bibliographic Info

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

    Volume (Year): 76 (2003)
    Issue (Month): 1 (January)
    Pages: 109-134

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    Handle: RePEc:ucp:jnlbus:v:76:y:2003:i:1:p:109-134

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

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    Cited by:
    1. Chen, Sheng-Syan & Chou, Robin K. & Lee, Yun-Chi, 2011. "Bidders' strategic timing of acquisition announcements and the effects of payment method on target returns and competing bids," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2231-2244, September.
    2. Sylwia Nowak, 2008. "How Do Public Announcements Affect The Frequency Of Trading In U.S. Airline Stocks?," CAMA Working Papers 2008-38, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    3. Michael R. King, 2009. "Prebid Run-Ups Ahead of Canadian Takeovers: How Big Is the Problem?," Financial Management, Financial Management Association International, vol. 38(4), pages 699-726, December.
    4. W. Paul Spurlin & Bonnie F. Van Ness & Robert Van Ness, 2012. "Short sales in the NYSE batch open and NASDAQ opening cross," International Journal of Managerial Finance, Emerald Group Publishing, vol. 8(3), pages 219-237.
    5. Drienko, Jozef & Sault, Stephen J., 2013. "The intraday impact of company responses to exchange queries," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 4810-4819.
    6. Moshirian, Fariborz & Nguyen, Huong Giang (Lily) & Pham, Peter Kien, 2012. "Overnight public information, order placement, and price discovery during the pre-opening period," Journal of Banking & Finance, Elsevier, vol. 36(10), pages 2837-2851.
    7. Pia Bandyopadhyay & James Hackard & Yiuman Tse, 2010. "The effect of stock splits on iShare exchange-traded funds," Managerial Finance, Emerald Group Publishing, vol. 36(2), pages 134-159, February.
    8. Humphery-Jenner, Mark L., 2011. "Optimal VWAP trading under noisy conditions," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2319-2329, September.
    9. Albuquerque, Rui & Vega, Clara, 2006. "Asymmetric Information in the Stock Market: Economic News and Co-movement," CEPR Discussion Papers 5598, C.E.P.R. Discussion Papers.
    10. Guoying Deng & Li Gan & Manuel A. Hernandez, 2013. "Do People Overreact? Evidence from the Housing Market After the Wenchuan Earthquake," NBER Working Papers 19515, National Bureau of Economic Research, Inc.
    11. Jeetendra Dangol, 2008. "Unanticipated Political Events and Stock Returns: An Event Study," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 20, pages 86-110, April.

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