Anchoring and Global Underreaction to Firm-Specific News

64 Pages Posted: 5 Mar 2023 Last revised: 11 Apr 2023

See all articles by Tobias Kalsbach

Tobias Kalsbach

Technische Universität München (TUM)

Steffen Windmüller

Technische Universität München (TUM) - School of Management

Date Written: March 1, 2023

Abstract

This paper examines how the anchoring effect causes investor underreaction to global firm-specific news. Using a high-frequency methodology to identify news events for stocks in 23 developed countries from 2004 to 2021, the results show that investors tend to hold on to their initial beliefs about a stock despite new information. The 52-week high anchor affects the processing of firm-specific news, leading to a distorted belief updating process. Regression analyses indicate that the interaction between firm-specific news return and nearness to the 52-week high is related to a significant risk-adjusted return, providing evidence of investors' distorted belief updating process.

Keywords: Information and Market Efficiency, Belief, Stock-Returns

JEL Classification: G14, D83, L14

Suggested Citation

Kalsbach, Tobias and Windmüller, Steffen, Anchoring and Global Underreaction to Firm-Specific News (March 1, 2023). Available at SSRN: https://ssrn.com/abstract=4374234 or http://dx.doi.org/10.2139/ssrn.4374234

Tobias Kalsbach (Contact Author)

Technische Universität München (TUM) ( email )

Arcisstrasse 21
Munich, DE 80333
Germany

Steffen Windmüller

Technische Universität München (TUM) - School of Management ( email )

Arcisstrasse 21
Munich, DE 80333
Germany

HOME PAGE: http://www.fm.wi.tum.de/index.php?id=188

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