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Market Reactions to Tangible and Intangible Information

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  • Kent Daniel
  • Sheridan Titman

Abstract

We decompose stock returns into components attributable to tangible and intangible information. A firm's tangible return is the component of its return attributable to fundamental accounting-performance information, and its intangible return is the component which is orthogonal to this information. Our evidence indicates that intangible information reliably predicts future stock returns. However, in contrast to previous research, we find that tangible returns have no forecasting power. The premia associated with intangible information pose challenges for both traditional asset pricing models and models based on psychological factors.

Suggested Citation

  • Kent Daniel & Sheridan Titman, 2003. "Market Reactions to Tangible and Intangible Information," NBER Working Papers 9743, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:9743
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    • G1 - Financial Economics - - General Financial Markets

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