Information Uncertainty and Stock Returns

Posted: 8 Nov 2004

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Abstract

There is substantial evidence of short-term stock price continuation, which the prior literature often attributes to investor behavioral biases such as underreaction to new information. This paper investigates the role of information uncertainty in price continuation 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 should produce relatively higher expected returns following good news and relatively lower expected returns following bad news. My evidence supports this hypothesis.

Suggested Citation

Zhang, Frank, Information Uncertainty and Stock Returns. Journal of Finance, Vol. 61, No. 1, February 2006. Available at SSRN: https://ssrn.com/abstract=614622

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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