Prof. Dr. Rainer Baule, University of Hagen
Prof. Dr. Christian Tallau, Corresponding author. Münster University of Applied Sciences, Corrensstr. 25, 48149 Münster, Germany. Phone: +49 251 83-65553. Fax: +49 251 83-65532.
Predicting Market Reactions to Bad News
Kim, Hang Sun
(2018)https://doi.org/10.2139/ssrn.3144041 [Citations: 0]
We revisit the overreaction hypothesis in the light of information effects. Using a sample period from 2005–2012 covering 2,542 large price changes in the German stock market, our results indicate that information effects can explain both overreaction and underreaction patterns. Specifically, we find that large positive price changes without public information signals are followed by short-term price reversals. In contrast, negative price shocks concurrent with a public announcement are associated by price continuations. The results are robust to size effects and sub-periods. Furthermore, we design a trading strategy to show that the observed return predictability could have been exploited for large negative price changes.
Table of Contents
|Rainer Baule / Christian Tallau: Stock Returns Following Large Price Changes and News Releases – Evidence from Germany||1|