Investor Reaction to Corporate Event Announcements: Underreaction or Overreaction?
AbstractTwo conflicting behavioral models, underreaction and overreaction, have been proposed to explain long-run abnormal returns following a variety of corporate events. We test hypotheses that distinguish between these two models. We find that across four different corporate events, long-run abnormal returns exhibit a pattern that is most consistent with investor underreaction to short-term information available prior to the event and to the information conveyed by the event itself. The pattern in long-run abnormal returns is inconsistent with the overreaction model as well as with a model that postulates investor underreaction to short-term information and overreaction to long-term trends.
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Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Business.
Volume (Year): 77 (2004)
Issue (Month): 2 (April)
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Web page: http://www.journals.uchicago.edu/JB/
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