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Drift And Reversal After Major Price Changes

Posted on:2014-08-17Degree:MasterType:Thesis
Country:ChinaCandidate:L W HeFull Text:PDF
GTID:2269330428957345Subject:Finance
Abstract/Summary:PDF Full Text Request
Effieient Market Hothesis(EMH) believes the stock price has already contain all the related information from the stock marktet, which means investors cannot get excess retuns. But since the1980s, lots of empirical researchs has shown some phenomenon called "market anomalies" that is hard to explain by EMH, such as Momentum Effect and Reversal Effect. These two phenonmenon provokes widespread debate in academia, while the theoretical explanation from Behavioral Finance scholars that investors will underreact and overreact in the market arouses extensive concern. In their conclusion, as a result of underreaction and overreaction by investors, stock returns are predictable when the new public information is generated or the stock market is volatile. So will there be any difference of stock price changing after the major price change accompanied by significant public news or not? Investors will underreact or overreact in these situations?I analyse literatures at home and abroad comprehensively, and by using the major price changes in stock market of Shanghai and Shenzhen from2009to2012as samples and analyst recommendations as a proxy of public information, I take the event study method to compare the stock price behavior after large price changes accompanied by analyst recommendations or no-recommendations, with the perspective that investors maybe underreact and overreact in the situation of releasing significant public information or not. Morever, this article also has made a corresponding analysis concerning the information content of analysts ratings.I find that major price changes accompanied by analyst recommendations are followed by drift, while no-recommendations ones result in reversals. Consequently, we deduce that analysts can differentiate various drivers of major price changes, and the analyst recommendations can convey some useful information to investors. Consistent with this hypothesis, the direction of the price move and the change in analyst recommendations has the same sign or not will produce price momentum and reversals respectively. Furthermore, the price changes accompanied by analyst recommendations have a stronger correlation with future earning surprises than no-recommendations ones, which means the former can better expect the change of next quarter’s performance.
Keywords/Search Tags:major price changes, momentum effect, reversal effect, analyst recommendations
PDF Full Text Request
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