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Evidence on Stock Reaction to Market-Wide Information

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  • Ding Du

    ()
    (The W. A. Franke College of Business, PO Box 15066, Northern Arizona University, Flagstaff, AZ 86011, USA)

  • Karen Denning

    ()
    (Department of Economics and Finance, Fairleigh Dickinson University Teaneck, New Jersey 07666, USA)

  • Xiaobing Zhao

    ()
    (The W. A. Franke College of Business, PO Box 15066, Northern Arizona University, Flagstaff, AZ 86011, USA)

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    Abstract

    The main purpose of this paper is to show that the lack of misreaction to common information in previous research may be due to methodological weakness. As of now, there is no evidence which suggests that stocks under-react to common information at short horizons and over-react at longer horizons. Even if stocks under- and/or over-react to common information at the security level, the reaction pattern may not be evident at the market level if only some stocks have such a pattern and their capitalization is small. We show in this manuscript that the lack of misreaction to common information in previous research may be due to methodological weakness. By focusing on the stock level reaction, we find a statistically and economically significant reaction pattern to common information as the behavioral models suggest. This finding thus complements the findings of stock misreaction to firm-specific information, and may benefit researchers attempting to understand investor behavior.

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    Bibliographic Info

    Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal Review of Pacific Basin Financial Markets and Policies.

    Volume (Year): 14 (2011)
    Issue (Month): 02 ()
    Pages: 297-325

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    Handle: RePEc:wsi:rpbfmp:v:14:y:2011:i:02:p:297-325

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    Related research

    Keywords: Market-wide information; intangible information; size factor; behavioral models of asset pricing;

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