Security analysts and ‘bad news’: a note on 9/11

Simon Hussain

Applied Financial Economics Letters, 2006, vol. 2, issue 4, 251-256

Abstract: Numerous stock market studies over the last two decades have provided evidence of anomalous price behaviour that is consistent with over-reaction to information. Security analysts’ forecasts of corporate earnings are often seen as a potential driver for prices and so have also been investigated for evidence of over-reaction. While excessive volatility in analysts’ forecasts is reported in DeBondt and Thaler (1990) it has been suggested that analysts’ reactions may differ across different information types (Abarbanell and Bernard, 1992). Easterwood and Nutt (1999) hypothesize that analysts may under-react to negative information but over-react to positive information. This research examines analysts’ reactions to one major piece of negative information or ‘bad news’, namely the impact of 9/11 on international airlines. The time profile of analysts’ forecast errors indicates that analysts over-reacted in the immediate wake of 9/11, in a manner consistent with DeBondt and Thaler's general over-reaction hypothesis rather than Easterwood and Nutt's differential good/bad news reaction hypothesis.

Date: 2006
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DOI: 10.1080/17446540600690128

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