Intra-industry effects of negative stock price surprises

Aigbe Akhigbe (), Jeff Madura () and Anna Martin ()

Review of Quantitative Finance and Accounting, 2015, vol. 45, issue 3, 559 pages

Abstract: We find that a pronounced stock price decline of one firm yields negative valuation effects for industry rivals, on average. We test whether the impact is conditioned on a measure of default likelihood of rivals derived from the option pricing framework. The stock price contagion effects are more pronounced for rivals with the greatest default likelihood. The contagion effects are also conditioned on the degree of the surprise, characteristics of the firm experiencing the negative surprise (such as its relative size), characteristics of the rival firms (such as their similarity to the firm experiencing the negative surprise), and characteristics of the corresponding industry (such as degree of concentration). The sensitivity of industry rivals and portfolios to negative stock price surprises changes during the 2007–2008 financial crisis, which may be because stocks had already been priced to reflect pessimistic outlooks, or because the market anticipated restructuring or government intervention that could prevent the collapse of firms with the greatest default likelihood. Copyright Springer Science+Business Media New York 2015

Keywords: Negative surprise; Intra-industry; Default likelihood; Distress; G30; G33 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://hdl.handle.net/10.1007/s11156-014-0446-4 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:rqfnac:v:45:y:2015:i:3:p:541-559

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/11156/PS2

DOI: 10.1007/s11156-014-0446-4

Access Statistics for this article

Review of Quantitative Finance and Accounting is currently edited by Cheng-Few Lee

More articles in Review of Quantitative Finance and Accounting from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().