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Sentiment and Stock Prices: The Case of Aviation Disasters

53 Pages Posted: 25 Mar 2008 Last revised: 28 Dec 2010

Guy Kaplanski

Bar-Ilan University - Graduate School of Business Administration

Haim Levy

Hebrew University of Jerusalem - Jerusalem School of Business Administration; Fordham University

Date Written: July 1, 2008

Abstract

Behavioral economic studies reveal that negative sentiment driven by bad mood and anxiety affects investment decisions and may hence affect asset pricing. In this study we examine the effect of aviation disasters on stock prices. We find evidence of a significant negative event effect with a market average loss of more than $60 billion per aviation disaster, whereas the estimated actual loss is no more than $1 billion. In two days a price reversal occurs. We find the effect to be greater in small and riskier stocks and in firms belonging to less stable industries. This event effect is also accompanied by an increase in the perceived risk: implied volatility increases after aviation disasters without an increase in actual volatility.

Keywords: Mood Event Effect, value stock returns, investors' mood, behavioral finance, disasters, abnormal returns

JEL Classification: A12, A14, D81, G1, G14

Suggested Citation

Kaplanski, Guy and Levy, Haim, Sentiment and Stock Prices: The Case of Aviation Disasters (July 1, 2008). Journal of Financial Economics (JFE), Vol. 95, No. 2, pp. 174-201, February 2010. Available at SSRN: https://ssrn.com/abstract=1084533

Guy Kaplanski (Contact Author)

Bar-Ilan University - Graduate School of Business Administration ( email )

Ramat Gan
Israel

Haim Levy

Hebrew University of Jerusalem - Jerusalem School of Business Administration ( email )

Mount Scopus
Jerusalem, 91905
Israel

HOME PAGE: http://pluto.huji.ac.il/~mshlevy/

Fordham University ( email )

140 West 62nd Street
New York, NY 10023
United States

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