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What Drives Stock Price Behavior Following Extreme One‐Day Returns

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  • Stephen J. Larson
  • Jeff Madura

Abstract

We identify samples of losers and winners by selecting daily stock price returns in excess of 10% (sign ignored) and determine whether these samples over‐ or underreact. We then identify “informed” events, which correspond to announcements in the Wall Street Journal(WSJ), and “uninformed” events, which are not explained in the WSJ. For winners, there is overreaction in response to uninformed events but no overreaction on average in response to informed events. This finding suggests the degree of overreaction to new information depends on whether the cause of the extreme stock price change is publicly released.

Suggested Citation

  • Stephen J. Larson & Jeff Madura, 2003. "What Drives Stock Price Behavior Following Extreme One‐Day Returns," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 26(1), pages 113-127, March.
    • Handle: RePEc:bla:jfnres:v:26:y:2003:i:1:p:113-127
    DOI: 10.1111/1475-6803.00048
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