Posted: 19 Jan 2002
We develop a model that accounts for medium-term continuation (momentum) in asset returns by analyzing information acquisition about news events (such as earnings announcements) in a multiperiod setting. As more and more agents become informed about news events, temporal uncertainty is resolved endogenously through market prices over time, which leads to positive autocorrelations in asset returns. We empirically estimate serial correlations over medium-term horizons for portfolios sorted by firm size and past stock performance and find that calibration of serial correlations in our model spans the range of empirically estimated correlations.
Suggested Citation: Suggested Citation
Subrahmanyam, Avanidhar and Holden, Craig W., News Events, Information Acquisition, and Serial Correlation. The Journal of Business, Vol. 75, No. 1, January 2002. Available at SSRN: https://ssrn.com/abstract=293351