Investor Reaction to Corporate Event Announcements: Underreaction or Overreaction?

Padmaja Kadiyala
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Padmaja Kadiyala: Purdue University
Authors registered in the RePEc Author Service: Raghavendra Rau

The Journal of Business, 2004, vol. 77, issue 2, 357-386

Abstract: Two conflicting behavioral models, underreaction and overreaction, have been proposed to explain long-run abnormal returns following a variety of corporate events. We test hypotheses that distinguish between these two models. We find that across four different corporate events, long-run abnormal returns exhibit a pattern that is most consistent with investor underreaction to short-term information available prior to the event and to the information conveyed by the event itself. The pattern in long-run abnormal returns is inconsistent with the overreaction model as well as with a model that postulates investor underreaction to short-term information and overreaction to long-term trends.

Date: 2004
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Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:ucp:jnlbus:v:77:y:2004:i:2:p:357-386

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