Market Reactions to Tangible and Intangible Information
58 Pages Posted: 7 Jun 2003 Last revised: 3 Nov 2010
Date Written: June 2003
We decompose stock returns into components attributable to tangible and intangible information. A firm's tangible return is the component of its return attributable to fundamental accounting-performance information, and its intangible return is the component which is orthogonal to this information. Our evidence indicates that intangible information reliably predicts future stock returns. However, in contrast to previous research, we find that tangible returns have no forecasting power. The premia associated with intangible information pose challenges for both traditional asset pricing models and models based on psychological factors.
Suggested Citation: Suggested Citation