Abstract

http://ssrn.com/abstract=1107690
 
 

References (40)



 
 

Citations (2)



 


 



Mispricing Following Public News: Overreaction for Losers, Underreaction for Winners


Ferhat Akbas


affiliation not provided to SSRN

Emre Kocatulum


Massachusetts Institute of Technology Department of Economics

Sorin M. Sorescu


Texas A&M University - Department of Finance

March 17, 2008


Abstract:     
We document an important relation between two well-established anomalies: momentum and short-term reversal. Only stocks with negative momentum experience short-term reversal. Using Chan's (2003) news database, we show that the market appears to overreact to public news following bad past performance and underreact following strong past performance. The results are robust to using alternative methodologies. Stocks with current good news and negative momentum earn on average -9.3% annual raw returns during the subsequent month, while stocks with current good news and positive momentum earn 32.2%. The large, negative raw returns point to cognitive biases, rather than risk-based explanations, as the source of abnormal returns.

Number of Pages in PDF File: 44

Keywords: Momentum, reversion, cognitive biases, market efficiency, anomalies, overreaction, underreacton, overconfidence, cognitive dissonance

JEL Classification: G12, G14

working papers series


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Date posted: March 25, 2008  

Suggested Citation

Akbas, Ferhat and Kocatulum, Emre and Sorescu, Sorin M., Mispricing Following Public News: Overreaction for Losers, Underreaction for Winners (March 17, 2008). Available at SSRN: http://ssrn.com/abstract=1107690 or http://dx.doi.org/10.2139/ssrn.1107690

Contact Information

Ferhat Akbas
affiliation not provided to SSRN
Emre Kocatulum
Massachusetts Institute of Technology Department of Economics ( email )
50 Memorial Drive
E52-391
Cambridge, MA 02142
United States
Sorin M. Sorescu (Contact Author)
Texas A&M University (TAMU) - Department of Finance ( email )
430 Wehner
College Station, TX 77843-4218
United States
979-458-0380 (Phone)
HOME PAGE: http://wehner.tamu.edu/finc.www/ssorescu/

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