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The relationship between uncertainty and the market reaction to information: Is it influenced by stock-specific characteristics?

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  • Ron Bird
  • Krishna Reddy
  • Danny Yeung

Abstract

In recent times we have seen an increased interest in separating information signals into good and bad news in order to gain improved insight into the reaction of investors. When we make this separation we find that the behaviour of investors oscillates between being optimistic and pessimistic in their interpretation of information somewhat driven by the prevailing level of uncertainty at the time of the information release. We go on to show that investors' reaction to information is not only conditioned by uncertainty but also a significant number of firm-specific characteristics. The reaction to bad news is greatest when it is released at times of high uncertainty by large, less liquid, low idiosyncratic risk, low leveraged, value stocks that are experiencing abnormally high trading volume. The reaction to good news is greatest when it is released at time of low market uncertainty by large, less liquid, high idiosyncratic risk, low leveraged, value stocks that are experiencing abnormally high trading.

Suggested Citation

  • Ron Bird & Krishna Reddy & Danny Yeung, 2014. "The relationship between uncertainty and the market reaction to information: Is it influenced by stock-specific characteristics?," International Journal of Behavioural Accounting and Finance, Inderscience Enterprises Ltd, vol. 4(2), pages 113-132.
    • Handle: RePEc:ids:ijbeaf:v:4:y:2014:i:2:p:113-132
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    1. Shraddha Mishra & Raj Kumar, 2016. "Investigation of overvalued and undervalued stocks: the case of BSE Sensex," International Journal of Business Excellence, Inderscience Enterprises Ltd, vol. 10(2), pages 177-189.

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    More about this item

    Keywords

    investor reaction; information; news; uncertainty; stock characteristics; investor behaviour; stock markets; market reaction.;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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