News Content, Investor Misreaction, and Stock Return Predictability

33 Pages Posted: 2 Sep 2015

See all articles by Muris Hadzic

Muris Hadzic

Whitman School of Management, Syracuse University

David Weinbaum

Syracuse University

Nir Yehuda

University of Texas at Dallas - Department of Accounting & Information Management

Date Written: September 2015

Abstract

Using a large dataset of news releases, we study instances of investors’ mistaken reaction, or misreaction, to news. We define misreaction as stock prices moving in the direction opposite to the news when it is released. We find that news tone predicts returns in the cross-section only upon the occurrence of misreaction. Stocks that are larger, more liquid, more visible, and more covered, by analysts or by the media, are less likely to exhibit misreaction. On the other hand, the ambiguity and complexity of news content, and variables that proxy for investor distraction, are all associated with more misreaction and greater predictability.

Keywords: media, news, stock return predictability, delayed reaction

JEL Classification: G12, G14, G17

Suggested Citation

Hadzic, Muris and Weinbaum, David and Yehuda, Nir, News Content, Investor Misreaction, and Stock Return Predictability (September 2015). Available at SSRN: https://ssrn.com/abstract=2653920 or http://dx.doi.org/10.2139/ssrn.2653920

Muris Hadzic

Whitman School of Management, Syracuse University ( email )

721 University Avenue
Syracuse, NY 13244-2130
United States

David Weinbaum (Contact Author)

Syracuse University ( email )

Syracuse, NY
United States

Nir Yehuda

University of Texas at Dallas - Department of Accounting & Information Management ( email )

2601 North Floyd Road
Richardson, TX 75083-0688
United States

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