Abstract

http://ssrn.com/abstract=1745247
 
 

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Frog in the Pan: Continuous Information and Momentum


Zhi Da


University of Notre Dame - Mendoza College of Business

Umit G. Gurun


University of Texas at Dallas

Mitch Warachka


Claremont Colleges - Robert Day School of Economics and Finance

May 4, 2011


Abstract:     
We develop and test a frog-in-the-pan hypothesis that predicts investors are less attentive to information arriving continuously in small amounts than to information with the same cumulative stock price implications arriving in large amounts at discrete timepoints. Intuitively, we hypothesize that a series of gradual frequent changes attracts less attention than infrequent dramatic changes. Consistent with our frog-in-the-pan hypothesis, we find strong evidence that continuous information induces stronger and more persistent return continuation. Over a six-month holding period, momentum decreases monotonically from 8.86% for stocks with continuous information during their formation period to
2.91% for stocks with discrete information but similar cumulative formation-period returns. Higher media coverage and higher analyst coverage are associated with more discrete and more continuous information, respectively. Therefore, provided a firm receives sufficient media coverage, low analyst coverage does not necessarily correspond to stronger return continuation.

Number of Pages in PDF File: 48

Keywords: momentum, limited attention, information discreteness

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Date posted: January 24, 2011 ; Last revised: May 8, 2011

Suggested Citation

Da, Zhi and Gurun, Umit G. and Warachka, Mitch, Frog in the Pan: Continuous Information and Momentum (May 4, 2011). Available at SSRN: http://ssrn.com/abstract=1745247 or http://dx.doi.org/10.2139/ssrn.1745247

Contact Information

Zhi Da
University of Notre Dame - Mendoza College of Business ( email )
Notre Dame, IN 46556-5646
United States
Umit G. Gurun
University of Texas at Dallas
2601 North Floyd Road
Richardson, TX 75083
United States
Mitch Warachka (Contact Author)
Claremont Colleges - Robert Day School of Economics and Finance ( email )
500 E. Ninth St.
Claremont, CA 91711-6420
United States
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