Abstract

http://ssrn.com/abstract=1333434
 
 

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Unusual News Events and the Cross-Section of Stock Returns


Turan G. Bali


Georgetown University - Robert Emmett McDonough School of Business

Anna Scherbina


University of California, Davis - Graduate School of Management

Yi Tang


Fordham University - School of Business

January 22, 2009

UC Davis Graduate School of Management Research Paper No. 10-09

Abstract:     
We show that stocks that experience a sudden increase in idiosyncratic volatility earn abnormally high contemporaneous returns but significantly underperform otherwise similar stocks in the future. Our findings indicate that volatility shocks can be traced to unusual firm-level news. We conjecture that these unusual news events increase the level of investor disagreement about firms’ fundamental values. Because short-selling of highly volatile stocks is costly, prices rise to reflect the more optimistic views but then revert down as investors’ opinions start to converge. The observed patterns of trade order imbalances and changes in investor disagreement lend support for this hypothesis.

Number of Pages in PDF File: 66

Keywords: idiosyncratic volatility shocks, unusual news events, divergence of opinion

JEL Classification: G10, G12, G14

working papers series


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Date posted: January 27, 2009 ; Last revised: February 27, 2012

Suggested Citation

Bali, Turan G. and Scherbina, Anna and Tang, Yi, Unusual News Events and the Cross-Section of Stock Returns (January 22, 2009). UC Davis Graduate School of Management Research Paper No. 10-09. Available at SSRN: http://ssrn.com/abstract=1333434 or http://dx.doi.org/10.2139/ssrn.1333434

Contact Information

Turan G. Bali
Georgetown University - Robert Emmett McDonough School of Business ( email )
3700 O Street, NW
Washington, DC 20057
United States
(202) 687-5388 (Phone)
(202) 687-4031 (Fax)
HOME PAGE: http://faculty.msb.edu/tgb27/index.html

Anna D. Scherbina (Contact Author)
University of California, Davis - Graduate School of Management ( email )
One Shields Avenue
Davis, CA 95616
United States
(530) 754-8076 (Phone)
(530) 752-2924 (Fax)
Yi Tang
Fordham University - School of Business ( email )
113 West 60th Street
Bronx, NY 10458
United States

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