Unusual News Events and the Cross-Section of Stock Returns
Turan G. Bali
Georgetown University - Robert Emmett McDonough School of Business
University of California, Davis - Graduate School of Management
Fordham University - School of Business
January 22, 2009
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: unusual news events, volatility shocks, differences of opinion
JEL Classification: G10, G12, G14working papers series
Date posted: March 18, 2009 ; Last revised: February 27, 2012
© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo4 in 0.297 seconds