IDEAS home Printed from
   My bibliography  Save this paper

The Relationship Between Uncertainty and the Market Reaction to Information: How is it Influenced by Market and Stock-Specific Characteristics?



Numerous empirical studies dating back to Ball and Brown (1968) have investigated how markets react to the receipt of new information. However, it is only recently that authors have focussed on differentiating between, and learning from, how investors react to good and bad news. In this paper we find that investors swing between being optimistic and being pessimistic in their interpretation of the new information driven by not only the prevailing market uncertainty and sentiment but also by a significant number of firm-specific characteristics. Pessimism prevails when uncertainty is high, sentiment is weak and the information is being disseminated by companies that are lowly-valued, have high risk, are thinly traded and/or are small cap stocks. However, investors swing to being optimistic when one reverses some or all of these factors. The conclusion that we draw is that risk, uncertainty and the attitude of investors combine to determine how the markets react to new information and this flows through to asset valuations.

Suggested Citation

  • Ron Bird & Krishna Reddy & Danny Yeung, 2011. "The Relationship Between Uncertainty and the Market Reaction to Information: How is it Influenced by Market and Stock-Specific Characteristics?," Working Paper Series 14, The Paul Woolley Centre for Capital Market Dysfunctionality, University of Technology, Sydney.
  • Handle: RePEc:uts:pwcwps:14

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Michael C. Jensen, 1968. "The Performance Of Mutual Funds In The Period 1945–1964," Journal of Finance, American Finance Association, vol. 23(2), pages 389-416, May.
    2. Golec, Joseph H., 1996. "The effects of mutual fund managers' characteristics on their portfolio performance, risk and fees," Financial Services Review, Elsevier, vol. 5(2), pages 133-147.
    3. K. J. Martijn Cremers & Antti Petajisto, 2009. "How Active Is Your Fund Manager? A New Measure That Predicts Performance," Review of Financial Studies, Society for Financial Studies, vol. 22(9), pages 3329-3365, September.
    4. Dimitri Vayanos & Paul Woolley, 2013. "An Institutional Theory of Momentum and Reversal," Review of Financial Studies, Society for Financial Studies, vol. 26(5), pages 1087-1145.
    5. Martijn Cremers & Antti Petajisto, 2006. "How Active is Your Fund Manager? A New Measure That Predicts Performance," Yale School of Management Working Papers amz2370, Yale School of Management, revised 01 May 2009.
    6. Ron Bird & Lorenzo Casavecchia & Paolo Pellizzari & Paul Woolley, 2011. "The impact on the pricing process of costly active management and performance chasing clients," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 6(1), pages 61-82, May.
    7. Jeffrey A. Busse & Amit Goyal & Sunil Wahal, 2010. "Performance and Persistence in Institutional Investment Management," Journal of Finance, American Finance Association, vol. 65(2), pages 765-790, April.
    8. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    9. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    10. Amit Goyal & Sunil Wahal, 2008. "The Selection and Termination of Investment Management Firms by Plan Sponsors," Journal of Finance, American Finance Association, vol. 63(4), pages 1805-1847, August.
    11. Aymen Karoui & Iwan Meier, 2009. "Performance and characteristics of mutual fund starts," The European Journal of Finance, Taylor & Francis Journals, vol. 15(5-6), pages 487-509.
    Full references (including those not matched with items on IDEAS)

    More about this item

    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

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    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:uts:pwcwps:14. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Duncan Ford). General contact details of provider: .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.