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Introduction

Chapter
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Part of the SpringerBriefs in Finance book series (BRIEFSFINANCE)

Abstract

Empirical studies in finance literature document evidence suggest the existence of the asset price underreaction and overreaction to new information. For example, Bernard and Thomas [J Account Res 27, 1–33, 1989] find that stock price continues to react to earnings one year after they were announced. Ikenberry et al. [J Financ Econ 39, 181–208, 1995] show a positive abnormal return four years after the open market share repurchase announcements. Ikenberry et al. [J Financ Quant Anal 31, 357–377, 1996] study how stock price responds to the split announcements. They find a significant positive postsplit excess return in the first three years. They attribute the postsplit return to market underreaction to the positive information signaled by a split. Desai and Jain [J Bus 70, 409–433, 1997] document a positive abnormal return both before and after a stock split. Also, a positive postevent abnormal return over two years after the announcement of repurchase tender offers was reported in Lakonishok and Vermaelen [J Financ 45, 455–477, 1990]. Michaely et al. [J Financ 50, 573–608, 1995] study market reactions to initiations and omissions of the cash dividend payments and they find that the stock price underreacts to the negative information in dividend omissions and to the positive information in initiations. Jagadeesh and Titman [J Financ 48, 65–91, 1993] identify the momentum effect, which is consistent with the market underreaction to new information. De Bondt and Thaler [J Bus 70, 409–433, 1985] present evidence that the stocks having the lowest returns over any given five-year period tend to have high return over the subsequent five years, and vice versa.

Keywords

Stock Price Asset Price Abnormal Return Initial Public Offering Informational Signal 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Copyright information

© The Author(s) 2014

Authors and Affiliations

  1. 1.DeGroote School of BusinessMcMaster UniversityHamiltonCanada

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