Valuewalk.com
0
All posts from Valuewalk.com
Valuewalk.com in Valuewalk.com,

News Content, Investor Misreaction, And Stock Return Predictability

News Content, Investor Misreaction, And Stock Return Predictability

Whitman School of Management, Syracuse University

David Weinbaum

Syracuse University

Nir Yehuda

University of Texas at Dallas - Department of Accounting & Information Management

September 2015

Abstract:

Using a large dataset of news releases, we study instances of investors’ mistaken reaction, or misreaction, to news. We define misreaction as stock prices moving in the direction opposite to the news when it is released. We find that news tone predicts returns in the cross-section only upon the occurrence of misreaction. Stocks that are larger, more liquid, more visible, and more covered, by analysts or by the media, are less likely to exhibit misreaction. On the other hand, the ambiguity and complexity of news content, and variables that proxy for investor distraction, are all associated with more misreaction and greater predictability.

News Content, Investor Misreaction, And Stock Return Predictability - Introduction

There is extensive evidence that stock prices underreact or overreact on average to certain types of news. While underreaction or overreaction has been shown to lead to predictability in the crosssection of stock returns, it can be difficult to identify ex ante specific instances when stocks...


More