The Effects of Overreaction to Bad News
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Authors
Flaugher, Brad J.
Issue Date
2009
Type
Thesis
Language
en_US
Keywords
Alternative Title
Abstract
Psychological evidence and casual intuition predict that humans tend
to overreact to bad news. This paper examines responses to bad news and
their effects in financial markets. If news is sufficiently bad, the market
tends to overreact and stock returns tend to be positive for one to two
days following the announcement of bad news. After three days stocks
trend downwards, which is in agreement with past observations of post
earnings announcement drift. Insider trading or information leakage was
also observed in the data. These results are difficult to reconcile with
theories of rational price-setting.
Description
106 p.
Citation
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License
U.S. copyright laws protect this material. Commercial use or distribution of this material is not permitted without prior written permission of the copyright holder.