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Divergence of Opinion Surrounding Extreme Events

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  • Tim Loughran
  • Jennifer Marietta-Westberg

Abstract

"This paper examines the stock market performance of a large sample of new issues (IPOs and SEOs) following an extreme price movement during the first three years after the offering. Strong underperformance follows either a positive or negative (at least +/ - 15%) one-day return event. This poor performance cannot be explained by the Fama-French four-factor methodology, or by the generally low stock returns of growth firms. Unlike recent issuers, non-issuers report no poor performance following a similar extreme event using the four-factor methodology. The extreme event date shows very high levels of turnover, a measure of divergence of opinion. Finally, there is a strong negative linkage between higher levels of divergence of opinion and subsequent stock performance". Copyright Blackwell Publishers Ltd, 2005.

Suggested Citation

  • Tim Loughran & Jennifer Marietta-Westberg, 2005. "Divergence of Opinion Surrounding Extreme Events," European Financial Management, European Financial Management Association, vol. 11(5), pages 579-601.
  • Handle: RePEc:bla:eufman:v:11:y:2005:i:5:p:579-601
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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1354-7798.2005.00299.x
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    Cited by:

    1. Deepika Bagchee, 2009. "Investors Adjust Expectations Around Sell-Side Analyst Revisions In Ipo Recommendations," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 32(1), pages 53-70.
    2. Ran Lu-Andrews & John L. Glascock, 2017. "Liquidity, Price Behavior, and Market-related Events," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 43(2), pages 318-351, March.
    3. Christian Weiner, 2005. "The Impact of Industry Classification Schemes on Financial Research," SFB 649 Discussion Papers SFB649DP2005-062, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    4. Alexandridis, George & Antoniou, Antonios & Zhao, Huainan, 2008. "Belief asymmetry and gains from acquisitions," Journal of Multinational Financial Management, Elsevier, vol. 18(5), pages 443-460, December.
    5. Doukas, John A. & Kim, Chansog & Pantzalis, Christos, 2006. "Divergence of opinion and equity returns under different states of earnings expectations," Journal of Financial Markets, Elsevier, vol. 9(3), pages 310-331, August.

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