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Rumor Clarification and Stock Returns: Do Bull Markets Behave Differently from Bear Markets?

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  • Xiaolan Yang
  • Yongli Luo

Abstract

This paper analyzes the effects of official rumor clarification on Chinese stock returns under different market conditions. The results show that the average cumulative abnormal return after the clarification event is significantly positive in a bull market, and significantly negative in a bear market. The results are robust across various types of rumors, including rumors of mergers and acquisitions, asset restructuring, and positive changes in a firm's operations. Moreover, in both bull and bear markets, investors are unable to distinguish between rumors that prove true and those that prove false, or between strong and weak rumor denial. Furthermore, investors are also unable to adjust their strategies accordingly.

Suggested Citation

  • Xiaolan Yang & Yongli Luo, 2014. "Rumor Clarification and Stock Returns: Do Bull Markets Behave Differently from Bear Markets?," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(1), pages 197-209, January.
    • Handle: RePEc:mes:emfitr:v:50:y:2014:i:1:p:197-209
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    Citations

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    Cited by:

    1. Shuangyan Li & Guangrui Wang & Yongli Luo, 2022. "Tone of language, financial disclosure, and earnings management: a textual analysis of form 20-F," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-24, December.
    2. Liu, Kaiyi & Yuan, Xianghui & Wang, Chen & Hou, Wenxuan, 2022. "Silence is golden? Responses to rumors by Chinese listed firms," Finance Research Letters, Elsevier, vol. 49(C).
    3. Jia, Ming & Ruan, Hongfei & Zhang, Zhe, 2017. "How rumors fly," Journal of Business Research, Elsevier, vol. 72(C), pages 33-45.
    4. Qianwen Xu & Victor Chang & Ching-Hsien Hsu, 0. "Event Study and Principal Component Analysis Based on Sentiment Analysis – A Combined Methodology to Study the Stock Market with an Empirical Study," Information Systems Frontiers, Springer, vol. 0, pages 1-17.
    5. Boateng, Ebenezer & Adam, Anokye M. & Junior, Peterson Owusu, 2021. "Modelling the heterogeneous relationship between the crude oil implied volatility index and African stocks in the coronavirus pandemic," Resources Policy, Elsevier, vol. 74(C).
    6. Yang, Ann Shawing, 2020. "Misinformation corrections of corporate news: Corporate clarification announcements," Pacific-Basin Finance Journal, Elsevier, vol. 61(C).
    7. Qianwen Xu & Victor Chang & Ching-Hsien Hsu, 2020. "Event Study and Principal Component Analysis Based on Sentiment Analysis – A Combined Methodology to Study the Stock Market with an Empirical Study," Information Systems Frontiers, Springer, vol. 22(5), pages 1021-1037, October.

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