Download This PaperAnnouncements, Expectations, and Stock Returns with Asymmetric Information
Journal of Monetary Economics, volume 151C, 103751, 2025 [10.1016/j.jmoneco.2025.103751]
84 Pages Posted: 31 Dec 2019 Last revised: 1 Apr 2025
Date Written: October 12, 2019
Abstract
Revisions of consensus macroeconomic and earnings forecasts positively predict announcement-day forecast errors, whereas stock market returns during forecast revision periods negatively predict announcement-day returns. A dynamic noisy rational expectations model with periodic announcements quantitatively accounts for these findings. Under asymmetric information, informed investors' forecast revisions positively predict forecast errors of the uninformed, causing average beliefs to underreact to new information and positively predict belief errors. Additionally, stock prices are partially driven by noise. Noise impact accumulates into stock prices during revision periods but gets corrected upon announcements. Therefore, revision period price changes negatively predict announcement-day returns.
Keywords: Macroeconomic Announcement, Expectations Formation, Noisy Rational Expectations, Learning, Trading Volume, Earnings Announcements
JEL Classification: D80, D83, D84, E37, G11, G12, G14
Suggested Citation: Suggested Citation
Han, Leyla Jianyu, Announcements, Expectations, and Stock Returns with Asymmetric Information (October 12, 2019). Journal of Monetary Economics, volume 151C, 103751, 2025 [10.1016/j.jmoneco.2025.103751], Available at SSRN: https://ssrn.com/abstract=3499773 or http://dx.doi.org/10.1016/j.jmoneco.2025.103751
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