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Unifying Underreaction Anomalies

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  • Andrew Jackson

    (London Business School)

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    Abstract

    This paper asks whether momentum and postevent drift are manifestations of the same underlying mechanism or are separate phenomena. We find that both effects can be attributed to persistence in returns following news that affects expected earnings or earnings growth. Holding these quantities fixed, there is no momentum effect, nor is there postevent drift for our sample of events, which includes seasoned equity offerings, repurchases, equity-financed mergers, and dividend initiations and omissions. The implication is that return continuation follows fundamental news in general, and in aggregate, this explains momentum.

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    Bibliographic Info

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

    Volume (Year): 79 (2006)
    Issue (Month): 1 (January)
    Pages: 75-114

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    Handle: RePEc:ucp:jnlbus:v:79:y:2006:i:1:p:75-114

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

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    Cited by:
    1. Perotti, Pietro & Rindi, Barbara, 2010. "Market makers as information providers: The natural experiment of STAR," Journal of Empirical Finance, Elsevier, vol. 17(5), pages 895-917, December.
    2. Ramnath, Sundaresh & Rock, Steve & Shane, Philip, 2008. "The financial analyst forecasting literature: A taxonomy with suggestions for further research," International Journal of Forecasting, Elsevier, vol. 24(1), pages 34-75.
    3. Vega, Clara, 2006. "Stock price reaction to public and private information," Journal of Financial Economics, Elsevier, vol. 82(1), pages 103-133, October.
    4. Chen, Hong-Yi & Chen, Sheng-Syan & Hsin, Chin-Wen & Lee, Cheng-Few, 2014. "Does revenue momentum drive or ride earnings or price momentum?," Journal of Banking & Finance, Elsevier, vol. 38(C), pages 166-185.

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