Management forecast credibility and underreaction to news

In this paper, we first document evidence of underreaction to management forecast news. We then hypothesize that the credibility of the forecast influences the magnitude of this underreaction. Relying on evidence that more credible forecasts are associated with a larger reaction in the short window...

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Main Authors: NG, Tee Yong Jeffrey, Tuna, Irem, Verdi, Rodrigo
格式: text
語言:English
出版: Institutional Knowledge at Singapore Management University 2013
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在線閱讀:https://ink.library.smu.edu.sg/soa_research/1191
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機構: Singapore Management University
語言: English
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總結:In this paper, we first document evidence of underreaction to management forecast news. We then hypothesize that the credibility of the forecast influences the magnitude of this underreaction. Relying on evidence that more credible forecasts are associated with a larger reaction in the short window around the management forecasts and a smaller post-management forecast drift in returns, we show that the magnitude of the underreaction is smaller for firms that provide more credible forecasts. Our paper contributes to the literature by providing out-of-sample evidence of the drift in returns documented in the post-earnings-announcement drift literature, with the credibility of the news being one explanation for the phenomenon.