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Stock Returns Following Profit Warnings: A Test of Models of Behavioural Finance

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  • Bulkley, George

    (University of Exeter)

  • Richard D.F. Harris
  • Renata Herrerias

Abstract

Models in behavioural finance have been developed to explain apparent anomalies in stock returns. A property common to a number of these models is that agents under react in the short run to public signals about future earnings. This contrasts sharply with the popular informal belief that stock prices overreact to news. A behavioural model also predicts returns reversals over longer horizons. We examine stock returns following profit warnings to test which, if any, of these hypotheses stands up to scrutiny on a new data set which was generated by a process which corresponds closely to that assumed in the behavioural models.

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  • Bulkley, George & Richard D.F. Harris & Renata Herrerias, 2002. "Stock Returns Following Profit Warnings: A Test of Models of Behavioural Finance," Royal Economic Society Annual Conference 2002 37, Royal Economic Society.
    • Handle: RePEc:ecj:ac2002:37
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    Cited by:

    1. Barnes, Paul, 2010. "Insider dealing and market abuse: the UKs record on enforcement," MPRA Paper 25585, University Library of Munich, Germany.
    2. Tom Berglund & P. Joakim Westerholm, 2010. "Foreign Investors' Reaction to Lower Profitability – The Role of Information Asymmetry," International Review of Finance, International Review of Finance Ltd., vol. 10(4), pages 455-483, December.

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