News Content, Investor Misreaction, and Stock Return Predictability
Date of Award
Doctor of Philosophy (PhD)
Investor Misreaction, News, Stock Predictability, Textual Analysis
Using a large dataset of news releases, we study instances of investors’ mistaken
reaction, or misreaction, to news. We define misreaction as stock prices moving in the
direction opposite to the news when it is released. We find that news tone predicts returns
in the cross-section only upon the occurrence of misreaction. Stocks that are larger, more
liquid, more visible, and more covered, by analysts or by the media, are less likely to
exhibit misreaction. On the other hand, the ambiguity and complexity of news content,
and variables that proxy for investor distraction, are all associated with more misreaction
and greater predictability.
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Hadzic, Muris, "News Content, Investor Misreaction, and Stock Return Predictability" (2016). Dissertations - ALL. 654.