Information Uncertainty and Stock Returns

48 Pages Posted: 26 Apr 2004

Multiple version iconThere are 2 versions of this paper

Date Written: April 20, 2004

Abstract

There is substantial evidence of short-term stock price continuation, which prior literature often attributes to investor behavioral biases such as underreaction to new information. This paper investigates the role of information uncertainty in short-term CAPM anomalies and cross-sectional variations in stock returns. If short-term price continuation is due to investor behavioral biases, we should observe greater price drift when there is greater information uncertainty. As a result, greater information uncertainty produces relatively higher expected returns following good news and relatively lower expected returns following bad news. The evidence presented in this paper supports this hypothesis.

Keywords: Information uncertainty, analyst forecast revision, momentum, expected returns

JEL Classification: G12

Suggested Citation

Zhang, Frank, Information Uncertainty and Stock Returns (April 20, 2004). Available at SSRN: https://ssrn.com/abstract=535783 or http://dx.doi.org/10.2139/ssrn.535783

Frank Zhang (Contact Author)

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

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