Stock Price Reaction to News and No-News: Drift and Reversal after Headlines

54 Pages Posted: 8 Mar 2001

Date Written: April 24, 2001

Abstract

I examine returns to a subset of stocks after public news about them is released. I compare them to other stocks with similar monthly returns, but no identifiable public news. There is a major difference between return patterns for the two sets. I find evidence of post-news drift, which supports the idea that investors underreact to information. This is strongest after bad news. I also find some evidence of reversal after extreme price movements that are unaccompanied by public news. The patterns are seen even after excluding earnings announcements, controlling for potential risk exposure, and other adjustments. They appear, however, to apply mainly to smaller stocks. I also find evidence that trading frictions, such as short-sale constraints, may play a role in the post-bad-news drift pattern.

Keywords: Momentum strategies, information diffusion

JEL Classification: G12, G14

Suggested Citation

Chan, Wesley S., Stock Price Reaction to News and No-News: Drift and Reversal after Headlines (April 24, 2001). Available at SSRN: https://ssrn.com/abstract=262452 or http://dx.doi.org/10.2139/ssrn.262452

Wesley S. Chan (Contact Author)

Acadian Asset Management ( email )

260 Franklin Street
Boston, MA 02110
United States

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