IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v61y2015i5p1072-1093.html
   My bibliography  Save this article

The Reaction of Stock Returns to News About Fundamentals

Author

Listed:
  • Tolga Cenesizoglu

    (Department of Finance, HEC Montréal, Montréal, Quebec H3T 2A7, Canada; and CIRPÉE, Montréal, Quebec H3T 2A7, Canada)

Abstract

In good times, stock prices react negatively to good news and positively to bad news, whereas in bad times, they react positively to good news and negatively to bad news. To account for this stylized fact, we consider an asset pricing model where the dividend growth rate switches between different values depending on the underlying state of the economy. Investors never observe the true dividend growth rate, but learn about it through not only its realizations but also external signals such as macroeconomic indicators. Under plausible assumptions, the differing precision of external signals across different states of the economy can change the sign of the market reaction to news from external signals in good and bad times. This paper was accepted by Brad Barber, finance.

Suggested Citation

  • Tolga Cenesizoglu, 2015. "The Reaction of Stock Returns to News About Fundamentals," Management Science, INFORMS, vol. 61(5), pages 1072-1093, May.
    • Handle: RePEc:inm:ormnsc:v:61:y:2015:i:5:p:1072-1093
    DOI: 10.1287/mnsc.2013.1859
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.2013.1859
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.2013.1859?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chotipong Charoensom, 2024. "An Estimation of Regime Switching Models with Nonlinear Endogenous Switching," PIER Discussion Papers 217, Puey Ungphakorn Institute for Economic Research.
    2. Francisco JAREÑO & Marta TOLENTINO & María de la O GONZÁLEZ, 2018. "The Us Stock Market At Sector Level: Inflation News, 1990-2013," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 18(1), pages 73-86.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:61:y:2015:i:5:p:1072-1093. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.