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What Makes Stock Prices Move? Fundamentals vs. Investor Recognition

37 Pages Posted: 17 Feb 2011 Last revised: 23 Apr 2014

Scott A. Richardson

AQR Capital Management, LLC; London Business School

Richard G. Sloan

University of California, Berkeley - Accounting Group; University of Southern California - Leventhal School of Accounting

Haifeng You

Hong Kong University of Science & Technology (HKUST) - Department of Accounting

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Date Written: February 16, 2011

Abstract

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).

Keywords: stock returns, fundamental analysis, investor recognition

JEL Classification: G12, G14, M41

Suggested Citation

Richardson, Scott A. and Sloan, Richard G. and You, Haifeng, What Makes Stock Prices Move? Fundamentals vs. Investor Recognition (February 16, 2011). Available at SSRN: https://ssrn.com/abstract=1762376 or http://dx.doi.org/10.2139/ssrn.1762376

Scott Anthony Richardson

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Richard G. Sloan (Contact Author)

University of California, Berkeley - Accounting Group ( email )

Haas School of Business
Berkeley, CA 94720
United States

University of Southern California - Leventhal School of Accounting ( email )

Los Angeles, CA 90089-0441
United States

Haifeng You

Hong Kong University of Science & Technology (HKUST) - Department of Accounting ( email )

Clear Water Bay
Kowloon
Hong Kong

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