Stock and Industry Return Characteristics Around Price Shocks

Michael B. McDonald IV

Journal of Behavioral Finance, 2017, vol. 18, issue 2, 167-179

Abstract: The author investigates positive and negative price shocks in individual securities and the degree to which they affect related firms in the same industry. This price contagion effect is significant with initial price shocks leading to substantial long-term abnormal returns across firms in the same industry over time. Price shocks also have predictive value regarding future earnings and revenues for the firm in question and its industry overall. Positive (negative) price shocks that are continued over time are associated with higher (lower) Sharpe ratios suggesting that abnormal returns are not simply a form of compensation for greater expected future volatility.

Date: 2017
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DOI: 10.1080/15427560.2017.1308939

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