Research

Trading on New News: How Investors React to Company Disclosures

Image of Trading on New News: How Investors React to Company Disclosures

How do markets respond to major corporate events and strategic decisions? Do stock prices adjust to new information immediately or does it take time for market participants to assess the impact of news on firm valuations? Until recently these have not been studied in-depth because of the lack of data. But in the early 2000s the Securities and Exchange Commission required publicly traded companies to disclose “material” information openly and simultaneously to the market.

Assistant Professor Anna Scherbina and co-authors Andreas Neuhierl of Northwestern University’s Kellogg School of Management and Bernd Schlusche, an economist with the Federal Reserve Board, have analyzed stock market behavior following an array of corporate disclosures reported in press releases since 2006. In their recent research, “Market Reaction to Corporate News and the Influence of the Financial Crisis,” Scherbina and her co-authors made three significant discoveries. First, while regulations were created to level the playing field, “The more sophisticated investors are better equipped to interpret how news will affect a firm’s value,” Scherbina notes. Yet, turning a profit is not easy, as investors understand that during the learning period immediately following news releases it’s still an uneven playing field in which trading costs rise and liquidity drops. “It takes time for major news to be fully reflected in prices,” Scherbina says.

The researchers also showed that the market’s response to certain types of news changed during the financial crisis. Firms were no longer penalized for debt and equity issuances, and news that signaled good prospects elicited exaggerated positive reactions, while news that signaled bad prospects intensified the negative reactions. “During the financial crisis, reactions to firms’ cash flow news, legal environment and management changes became more dramatic,” explains Scherbina.

Comments

Post new comment

96124245 » If you have a visual disability, please type the numbers two one three three into the box. Your submission will be promptly reviewed by a validation service and sent to the site administrators.
By proving you are not a machine, you help us prevent spam and keep the site secure.

Commands

Twitter Feed

Loading tweets...

Spotlight Story

Andrew Barkett Finds Innovative Ways to Fuel Entrepreneurship
Named First-ever Chief Technology Officer for Republican National Committee

Image of Andrew Barkett Finds Innovative Ways to Fuel Entrepreneurship

UPDATE: Andrew Barkett is leaving his post as senior engineer at Facebook to bring his decade of experience in Silicon Valley to become the first-ever chief technology officer for the Republican National Committee.The June 4 announcement has stirred a whirlwind of media coverage, including the Huffington Post and Washington Post.Bark

Spotlight Story

MBA Student Consultants Make an IMPACT
Projects Put Business Needs Front and Center

Image of MBA Student Consultants Make an IMPACT

Agilent Technologies’ Electronic Measurement Group is a $3.6 billion business that over the past decade has seen a dramatic shift in its customer base from U.S., and Western European customers to predominantly Asia-based customers. Today, the majority of the division’s revenues are generated outside of the U.S., with an increasing concentration in China.

Spotlight Story

UC Davis Part-Time MBA in Top 8%, Full-Time MBA in Top 9%
U.S. News & World Report’s latest rankings: This marks the 19th consecutive year our MBA program has been ranked among the best in the nation.

Image of  UC Davis Part-Time MBA in Top 8%, Full-Time MBA in Top 9%

(Davis, CA) — The UC Davis Graduate School of Management’s full-time MBA program has been ranked among the top six percent of AACSB International-accredited programs nationwide, according to U.S. News & World Report’s latest graduate business school rankings released today.

Spotlight Story

Mark Otero MBA 07 Builds Sacramento’s Coolest Company
The secret of social gaming mogul Mark Otero’s success is taking things to the extreme

Image of Mark Otero MBA 07 Builds Sacramento’s Coolest Company

The secret of Midtown Sacramento’s Facebook gaming mogul Mark Otero’s success is taking things to the extreme.