Announcements, expectations, and stock returns with asymmetric information

Leyla Jianyu Han

Journal of Monetary Economics, 2025, vol. 151, issue C

Abstract: Revisions of consensus macroeconomic and earnings forecasts positively predict announcement-day forecast errors, whereas stock market returns during forecast revision periods negatively predict announcement-day returns. A dynamic noisy rational expectations model with periodic announcements quantitatively accounts for these findings. Under asymmetric information, informed investors’ forecast revisions positively predict forecast errors of the uninformed, causing average beliefs to underreact to new information and positively predict belief errors. Additionally, stock prices are partially driven by noise. Noise impact accumulates into stock prices during revision periods but gets corrected upon announcements. Therefore, revision period price changes negatively predict announcement-day returns.

Keywords: Macroeconomic announcement; Earnings announcement; Expectations formation; Noisy rational expectations; Trading volume (search for similar items in EconPapers)
JEL-codes: D83 D84 G11 G12 G14 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:151:y:2025:i:c:s0304393225000224

DOI: 10.1016/j.jmoneco.2025.103751

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