Announcements, Expectations, and Stock Returns with Asymmetric Information

53 Pages Posted: 31 Dec 2019 Last revised: 28 Oct 2022

See all articles by Leyla Jianyu Han

Leyla Jianyu Han

Boston University - Questrom School of Business

Date Written: October 12, 2021

Abstract

Revisions of consensus forecasts of macroeconomic variables positively predict announcement-day forecast errors, whereas stock market returns on forecast revision days predict announcement-day returns in the opposite direction. A dynamic noisy rational expectations model with periodic macroeconomic announcements quantitatively accounts for these findings. Under asymmetric information, average beliefs are not Bayesian: they underweight new information and positively predict subsequent belief errors. In addition, stock prices are partially driven by noise. Noise accumulates into stock prices on revision days but gets corrected upon announcements. Therefore, price changes on revision days negatively predict announcement day returns.

Keywords: Macroeconomic Announcement, Expectations Formation, Noisy Rational Expectations, Trading Volume

JEL Classification: D80, D83, D84, E37, G11, G12, G14

Suggested Citation

Han, Leyla Jianyu, Announcements, Expectations, and Stock Returns with Asymmetric Information (October 12, 2021). Available at SSRN: https://ssrn.com/abstract=3499773 or http://dx.doi.org/10.2139/ssrn.3499773

Leyla Jianyu Han (Contact Author)

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

HOME PAGE: http://www.leylahan.com/

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