An anomaly within the behavioral literature is that as yet
there is no evidence suggesting that stocks mis-react to common information as
they do to firm-specific information. We demonstrate the limitations of the
previous research and revisit the issue of stock reaction to common information
in this manuscript. We find a statistically and economically significant
reaction pattern to common information as the behavioral models suggest we
should. This finding thus complements the findings of stock mis-reaction to
firm-specific information, and should benefit researchers attempting to
understand investor behavior. Furthermore, we find that the size factor may not
only proxy future economic growth as suggested by Vassalou (2003), but also the
delayed reaction to the news related to future economic growth.
JEL Classification: G12; G14; G15.
* The W. A. Franke College of Business, Northern Arizona
University, Flagstaff, AZ 8601, ding.du@nau.edu, Phone: (928) 523-7274, Fax:
(928) 5237331.
**Department of Economics and Finance, Fairleigh Dickinson University, Teaneck,
New Jersey, 07666, denning@fdu.edu, Phone: (201) 692-7294, Fax: (201) 692-7219.
*** The W. A. Franke College of Business, Northern Arizona University,
Flagstaff, AZ 86011, xiaobing.zhao@nau.edu, Phone: (928) 523-7279, Fax: (928)
5237331.
08-14 September 2008
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