Journal of Financial Economics Vol. 106 No. 3 2012
Stock returns after major price shocks: The impact of information
Abstract
This paper focuses on stocks that experience major price changes. Using analyst reports as a proxy, I find that price events accompanied by information are followed by drift, while no-information ones result in reversals. One interpretation of these results is that investors underreact to news about fundamentals and overreact to other shocks that move stock prices. Consistent with this hypothesis, information-based price changes are more strongly correlated with future earnings surprises than no-information ones. Furthermore, drift exists only when the direction of the price move and of the change in analyst recommendations have the same sign. Finally, the ratio of no-information to information-based price shocks is strongly correlated with aggregate implied volatility and also forecasts momentum returns.
- DOI
- 10.1016/j.jfineco.2012.06.011
- Volume
- 106
- Issue
- 3
- Pages
- 635-659
- Language
- en
- Sources
- crossref bibtex:phds-export.bib openalex