Stock returns after major price shocks: The impact of information

Pavel Savor

Journal of Financial Economics, 2012, vol. 106, issue 3, 635-659

Abstract: This paper focuses on stocks that experience major price changes. Using analyst reports as a proxy, I find that price events accompanied by information are followed by drift, while no-information ones result in reversals. One interpretation of these results is that investors underreact to news about fundamentals and overreact to other shocks that move stock prices. Consistent with this hypothesis, information-based price changes are more strongly correlated with future earnings surprises than no-information ones. Furthermore, drift exists only when the direction of the price move and of the change in analyst recommendations have the same sign. Finally, the ratio of no-information to information-based price shocks is strongly correlated with aggregate implied volatility and also forecasts momentum returns.

Keywords: Predictability of stock returns; Information; Analyst reports; Momentum reversals (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (75)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:106:y:2012:i:3:p:635-659

DOI: 10.1016/j.jfineco.2012.06.011

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