StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...

Stock Price and Information - Essay Example

Cite this document
Summary
Information is relevant news. A manager can take raw data, sift put relevant from irrelevant data, and recognize, summarize, and analyze these data. If the results are something new that can affect managers' decisions, then information was created. Quality information is very much important for investors to decide whether they invest on the particular company's stocks or not…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER97.7% of users find it useful
Stock Price and Information
Read Text Preview

Extract of sample "Stock Price and Information"

Download file to see previous pages

This will benefit existing shareholders.however; the potential new shareholders are not stupid. They will infer overvaluation from the new issue, thereby bidding down the stock price on the announcement date of the issue. So, for the information asymmetry stock price is raised.therefore, information affects stock price in many way. There is substantial evidence of short-term stock price continuation, which the prior literature often attributes to investor under reaction to new information. 1 By information uncertainty, it is meant that ambiguity with respect to the implications of new information for a firm's value, which potentially stems from two sources: The volatility of a firm's underlying fundamentals and poor information.

Here, main hypothesis is that if investors under react to public information, they will under react even more in cases of greater information uncertainty. The testable implication is that greater information uncertainty about the impact of news on stock value leads to higher expected stock returns following good news but lower expected stock returns following bad news relative to the returns of stocks about which there is less information uncertainty. . Several papers including Chan, Jegadeesh, and Lakonishok (1996) attribute price continuation to a gradual market response to information.

Hirshleifer (2001) and Daniel, Hirshleifer, and Subrahmanyam (1998, 2001) posit that psychological biases are increased when there is more uncertainty.New information is public, easily categorized as good or bad, and occurs fairly frequently. There are six proxies for information uncertainty: Firm size, firm age, analyst coverage, dispersion in analyst forecasts, return volatility, and cash flow volatility.2 For each of the six proxies, greater information uncertainty leads to relatively lower future stock returns following bad news and relatively higher future returns following good news, suggesting that uncertainty delays the flow of information into stock prices.

In other words, the market reaction to new information is relatively complete for low-uncertainty stocks, and there is little news-based return predictability. For high-uncertainty stocks, on the other hand, the market reaction is far from complete. Good news predicts relatively higher future returns and bad news predicts relatively lower future returns. This relation between information of uncertainty and future returns has used in prior empirical studies. Further assurance that is missing risk factors does not drive the results by documenting a similar return pattern around subsequent earnings announcement dates.

The opposite effects of information uncertainty on stock returns following good vs. bad news amplify the results of trading strategies. As a result, trading strategies that buy good-news stocks and short bad-news stocks work particularly well when limited to high-uncertainty stocks. For example, a momentum

...Download file to see next pages Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Stock Price and Information Essay Example | Topics and Well Written Essays - 5000 words”, n.d.)
Retrieved from https://studentshare.org/miscellaneous/1530613-stock-price-and-information
(Stock Price and Information Essay Example | Topics and Well Written Essays - 5000 Words)
https://studentshare.org/miscellaneous/1530613-stock-price-and-information.
“Stock Price and Information Essay Example | Topics and Well Written Essays - 5000 Words”, n.d. https://studentshare.org/miscellaneous/1530613-stock-price-and-information.
  • Cited: 0 times

CHECK THESE SAMPLES OF Stock Price and Information

Microanalysis of the recent Market, economic conditions, and the outlook

For the sake of this paper, the months of March and April will be the main focus, but related information will be before will be analyzed, if necessary.... Rowe price Investment Services, 2013).... Microanalysis of the recent market, economic conditions, and the outlook Name: Number: Course: Lecturer: Date: Microanalysis of the recent market, economic conditions, and the outlook stock markets in the United States of America have been doing well since the beginning of the year....
5 Pages (1250 words) Essay

Stock Price and Trading Volume

A positive correlation between the price change and trading volume had been implied by the 'mixture of distributions hypothesis', only if the conditional indication of the stock price procession is in proportion to the quantity of new information into the market.... Smirlock and Starks (64) had found that the relationship could only be supported during the time intervals when they could distinguish when the new information ex ante had reached the financial market....
4 Pages (1000 words) Essay

Understanding Stock Options Information

If demand exceeds supply, the stock price will increase, and vice versa.... If demand exceeds supply, the stock price will increase, and vice versa.... The essay "Understanding Stock Options information" analyzes the stocks which are fundamental to buying the options.... The option is a contract between buyer and seller to buy or sell a stock at a given price.... 15 International Encyclopedia of Technical Analysis Page 15 and 16,), these illustrations show ascending and descending price top transitions, from time period- to- time period, that trail stock directions....
9 Pages (2250 words) Essay

Why Price Momentum Is Contrary to the Efficient Markets Hypothesis

Shivakumar (2006) agrees that this phenomenon does seem contrary to the efficient market hypothesis, whereby, the hypothesis state that information is readily and equally available to all investors to ensure that the decision making of each is the differential amongst their strategy because the strategy is derived from information on which a decision is made.... Along similar lines, if information available to everyone is the same, then there is a consistency of information available in the market....
9 Pages (2250 words) Assignment

Stock Rate of Return

A firm's stock Rate of Return (SRR) is the gain or loss of an investment in its stocks over a specified period, usually expressed as a percentage increase over the initial investment cost.... hellip; A firm's stock Rate of Return (SRR) is the gain or loss of an investment in its stocks over a specified period, usually expressed as a percentage increase over the initial investment cost.... A stock Rate of Return measurement measures the stock value, based on their past rates of return....
4 Pages (1000 words) Essay

Financial Markets - Understanding Stock Option Information

If demand exceeds supply, the stock price will increase, and vice versa.... Assumption associations are derived from historical patterns, price patterns, and supply and demand relationship.... 15 International Encyclopedia of Technical Analysis Page 15 and 16,), these illustrations show ascending and descending price top transitions, from time period- to- time period, that trail stock directions.... Assumption associations are derived from historical patterns, price patterns, and supply and demand relationship....
10 Pages (2500 words) Essay

Efficient Market Hypothesis

Critics of the Efficient Market Hypothesis also draw our attention towards the event of 1987 and many as such when the stock price of Jones Industrial Average (DJIA) came down by 20% in one day as proof that stock prices can diverge to a large extent from their fair market values.... The weak Efficient Market Hypothesis theory says that prices on assets traded such as bonds, stocks, or property already show all past available information for public.... The semi-strong Efficient Market Hypothesis states that prices in addition to reflecting publicly available past information also shows that prices constantly change to show new publicly available information....
5 Pages (1250 words) Essay

Factors of Moving Stock Prices and Corporate Governance

It should be noticed here that there are also other factors that can influence the share price and as a result the investment decision on a particular corporation.... (1999, 183) stated that 'a number of authors have argued that commercial real estate offers diversification benefits to institutional investors because of its low correlation with commonly used stock price indexes; for example, using annual U.... (1999) admitted that 'the low correlation between real estate and stock price indexes is somewhat surprising, given that both are affected by the level of economic activity and interest rates; however, other factors can reduce the correlation between the two-time series; for example, stock prices may increase because of increased investment opportunities in an economy corporate sector; changes in the cost of labor could also induce a negative relation between stock prices and commercial real estate values: for example, foreign competition may lead to decreases in domestic wage rates, which in turn lead to increased corporate profits and higher stock prices' (Quan et al....
15 Pages (3750 words) Coursework
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us