Return Predictability Conditional on the Characteristics of Information Signals

This dissertation examines whether simultaneously conditioning on the multidimensional characteristics of information signals can help predict returns that are of economic significance. We use large price changes, public announcements, and large volume increases to proxy for the magnitude, dissemination, and precision of information signals. Abnormal returns following large price change events are found to be unimportant. As we condition on other characteristics of information signals, the abnormal returns become large. Large price change events accompanied by both a public announcement and an increase in volume have a 20-day abnormal return of almost 2% for positive events and -1.68% for negative events. The type of news provides further refinement. If the news relates to earnings announcements, management earnings forecasts, or analyst recommendations then the 20-day abnormal returns becomes much larger: ranging from 3% to 4% for positive events and about -2.25% for negative events. For these news events, we also find that the underreaction is greater for positive (negative) event firms that underperformed (overperformed) the market in the prior period, earning 20-day post-event abnormal returns of 4.85% (-3.50%). This evidence is consistent with the Barberis, Shleifer, and Vishny (1998) model of investor sentiment that suggests that investors are slow to change their beliefs. The evidence from our sample does not provide much support for strategic trading models under information asymmetry. Finally, an out-of-sample trading strategy generates 20-day post-event statistically significant abnormal return of 2.18% for positive events and -2.40% for negative events. Net of transaction costs, the abnormal returns are a statistically significant 1.04% for positive events and a statistically significant -1.51% for negative events.

Name thesis:degree_name

Ph. D.

Level thesis:degree_level

doctoral

Discipline thesis:degree_discipline

Finance

Department dc:contributor.department

Finance

Grantor dc:publisher

Virginia Tech

Year dc:date.issued

1999

Author dc:creator

• Pritamani, Mahesh

Chair dc:contributor.committeechair

• Singal, Vijay

Committee members dc:contributor.committeemember

• Kumar, Raman
• Keown, Arthur J.
• Kadlec, Gregory B.
• Billingsley, Randall S.

• Information Quality
• Return Predictability
• Information Signals

Statement dc:rights

• In Copyright

Licence dc:rights.uri

• http://rightsstatements.org/vocab/InC/1.0/

Dc Identifier Other

etd-042399-112528

OAI identifier oai:identifier

oai:vtechworks.lib.vt.edu:10919/27180