 Stock Price Dynamics Surrounding Company-Specific ShocksEconomic Studies journal, 2021, issue 7, 32-45 Abstract: In this study, I analyze the correlation between stock returns before and after major price shocks. I hypothesize that if a large price move for a given stock takes place after a short period when the stock’s price moves in the same direction, then it may indicate that the fundamentals of the company-specific shock are more completely incorporated in the stock price, significantly increasing the probability of subsequent post-event price reversal. In order to test the study’s hypothesis, I employ the price data for all the stocks that made up the S&P 500 Index during the period from 1993 to 2019, and define significant price moves according to a number of alternative proxies referring to both raw and abnormal stock returns. I find that both large price increases and decreases are followed by significant one to three month price reversals (drifts) if they are preceded by the same- (opposite-) sign short-term cumulative abnormal returns. The effect remains significant after accounting for additional relevant company-specific (size, Market Model beta, historical volatility) and event-specific (stock’s return and trading volume on the event day) factors. JEL-codes: G11 G14 G19 (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bas:econst:y:2021:i:7:p:32-45 Access Statistics for this article More articles in Economic Studies journal from Bulgarian Academy of Sciences - Economic Research Institute Contact information at EDIRC. |
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