Psychological barrier and cross-firm return predictability

Shiyang Huang, Tse-Chun Lin and Hong Xiang

Journal of Financial Economics, 2021, vol. 142, issue 1, 338-356

Abstract: We provide a psychological explanation for the delayed price response to news about economically linked firms. We show that the return predictability of economically linked firms depends on the nearness to the 52-week high stock price. The interaction between news about economically linked firms and the nearness to the 52-week high can partially explain the underreaction to news about customers, geographic neighbors, industry peers, or foreign industries. We also find that analysts react to news about economically linked firms but the 52-week high effect reduces such reactions, providing direct evidence that the 52-week high affects the belief-updating process.

Keywords: Cross-firm return predictability; Psychological barrier; 52-week high; Customer momentum (search for similar items in EconPapers)
JEL-codes: G10 G11 G14 G24 G41 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:142:y:2021:i:1:p:338-356

DOI: 10.1016/j.jfineco.2021.06.006

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