What Makes Stock Prices Move? Fundamentals vs. Investor Recognition

Posted: 26 Mar 2012

See all articles by Scott A. Richardson

Scott A. Richardson

AQR Capital Management, LLC; London Business School

Richard G. Sloan

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: March 26, 2012

Abstract

The authors synthesized and extended recent research demonstrating that investor recognition is a distinct, 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, companies time their financing and investing decisions to exploit changes in investor recognition. Investor recognition dominates stock price movements over short horizons, whereas fundamentals dominate over longer horizons.

Keywords: Equity Investments, Equity Market Valuation and Return Analysis, Fundamental Analysis (Sector, Industry, Company) and the Valuation of Individual Equity Securities, Portfolio Management, Equity Portfolio Management Strategies

Suggested Citation

Richardson, Scott Anthony and Sloan, Richard G. and You, Haifeng, What Makes Stock Prices Move? Fundamentals vs. Investor Recognition (March 26, 2012). Financial Analysts Journal, Vol. 68, No. 2, 2012. Available at SSRN: https://ssrn.com/abstract=2029278

Scott Anthony Richardson (Contact Author)

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

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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