Abstract

http://ssrn.com/abstract=1342672
 
 

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Information Uncertainty and the Reaction of Stock Prices to News


Paolo Angelini


Bank of Italy

Giovanni Guazzarotti


Bank of Italy

February 13, 2009


Abstract:     
We argue that the behavioral theories suggesting that investors underreact to new information yield sharp testable implications concerning the sluggishness with which stock prices react to the arrival of news, and not concerning price continuation patterns, on which most of the literature has focused so far. Specifically, if underreaction is heightened by uncertainty surrounding the firm, then higher uncertainty will cause prices to react more slowly to news, whereas it may, but need not, cause stronger price continuation. Using data on the post-analyst revisions drift and the post-earnings announcement drift we find scarce evidence in support of this thesis.

Number of Pages in PDF File: 38

Keywords: Overconfidence, Stock price continuation, Stock price reaction to news

JEL Classification: G11, G14

working papers series


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Date posted: February 13, 2009  

Suggested Citation

Angelini, Paolo and Guazzarotti, Giovanni, Information Uncertainty and the Reaction of Stock Prices to News (February 13, 2009). Available at SSRN: http://ssrn.com/abstract=1342672 or http://dx.doi.org/10.2139/ssrn.1342672

Contact Information

Paolo Angelini
Bank of Italy ( email )
Via Nazionale 91
Rome, 00184
Italy
Giovanni Guazzarotti (Contact Author)
Bank of Italy ( email )
Via Nazionale 91
Rome, 00184
Italy
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