Psychological Barrier and Cross-Firm Return Predictability

57 Pages Posted: 6 Feb 2018 Last revised: 22 May 2019

See all articles by Shiyang Huang

Shiyang Huang

The University of Hong Kong - Faculty of Business and Economics

Tse-Chun Lin

The University of Hong Kong - Faculty of Business and Economics

Hong Xiang

The University of Hong Kong

Date Written: May 21, 2019

Abstract

This paper provides a psychological explanation for the delayed price response to news about economically linked firms. We show that the return predictability of economically linked firms depends on the nearness to the 52-week high. The interaction between news about economically linked firms and the nearness to 52-week high can at least partially explain the underreaction to news about customers, geographic neighbors, industry peers, standalone firms, or foreign industries. We further examine how anchoring on the 52-week high affects belief updating regarding analyst recommendation revisions. We find that analysts react to news about economically linked firms but that anchoring on the 52-week high reduces such reactions.

Keywords: Cross-firm return predictability, Psychological barrier, 52-week high, Customer momentum

JEL Classification: G10, G11, G14, G24, G41

Suggested Citation

Huang, Shiyang and Lin, Tse-Chun and Xiang, Hong, Psychological Barrier and Cross-Firm Return Predictability (May 21, 2019). Available at SSRN: https://ssrn.com/abstract=3115934 or http://dx.doi.org/10.2139/ssrn.3115934

Shiyang Huang (Contact Author)

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Tse-Chun Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Hong Xiang

The University of Hong Kong ( email )

Hong Kong

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