Abnormal Stock Returns, for the Event Firm and Its Rivals, Following the Event Firm's Large One-Day Stock Price Drop
Managerial Finance, Forthcoming
Posted: 9 Jan 2011 Last revised: 10 Jan 2011
Date Written: November 10, 2010
We find intra-industry contagion and the following other potential violations of the efficient market hypothesis following large one-day individual stock price decline events. On average, after an event, the event stock experiences a positive three-day abnormal return (S&P 600 stocks) followed by a seventeen day negative abnormal return (both S&P 500 and 600 stocks). Moreover, for that seventeen day period: 1) the rivals' stocks outperform the event firms' stocks and 2) the event firms' stock returns are statistically significantly related to pre-event variables. We also find statistically significant relationships between the pre-event variables and the rivals' post-event stock returns.
Keywords: Intra-Industry Effect, Price Reversal, Price Continuity
JEL Classification: G14
Suggested Citation: Suggested Citation