Announcements, expectations, and stock returns with asymmetric information

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SSRN-id3499773.pdf(1.22 MB)
First author draft
Date
2021-11-11
Authors
Han, Leyla Jianyu
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First author draft
OA Version
Citation
L.J. Han. "Announcements, Expectations, and Stock Returns with Asymmetric Information." SSRN Electronic Journal, https://doi.org/10.2139/ssrn.3499773
Abstract
Revisions of consensus forecasts of macroeconomic variables positively predict announcement day forecast errors, whereas stock market returns on forecast revision days predict announcement day returns in the opposite direction. A dynamic noisy rational expectations model with periodic macroeconomic announcements quantitatively accounts for these findings. Under asymmetric information, average beliefs are not Bayesian: they underweight new information and positively predict subsequent belief errors. In addition, stock prices are partly driven by noise, and therefore negatively predict returns on announcement days when noise is revealed and the market corrects itself.
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