What Makes Stock Prices Move? Fundamentals vs. Investor Recognition
Scott A. Richardson
London Business School
Richard G. Sloan
University of California at Berkeley - Haas School of Business
Hong Kong University of Science & Technology - Department of Accounting
February 16, 2011
We synthesize and extend recent research demonstrating that investor recognition is a distinct and significant determinant of stock price movements. Realized stock returns are strongly positively related to changes in investor recognition and expected returns are strongly negatively related to the level of investor recognition. Moreover, firms time their financing and investing decisions to exploit changes in investor recognition. Investor recognition dominates stock price movements over short horizons (e.g., one quarter), while fundamentals dominate over longer horizons (e.g., five years).
Number of Pages in PDF File: 37
Keywords: stock returns, fundamental analysis, investor recognition
JEL Classification: G12, G14, M41working papers series
Date posted: February 17, 2011 ; Last revised: June 25, 2011
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