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Stock Returns Following Large Price Changes and News Releases – Evidence from Germany

Baule, Rainer | Tallau, Christian

Credit and Capital Markets – Kredit und Kapital, Vol. 49 (2016), Iss. 1: pp. 57–91

2 Citations (CrossRef)

Additional Information

Article Details

Author Details

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.

Cited By

  1. Predicting Market Reactions to Bad News

    Yu, Xiaowen

    Xin, Xin

    Chen, Liangliang

    Kim, Hang Sun

    (2018)

    https://doi.org/10.2139/ssrn.3144041 [Citations: 0]

Abstract

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.