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Overreaction to intra-industry information transfers?
Jocob Thomas, Yale School of Management
Frank Zhang, Yale School Of Management
ABSTRACT. Prior research has documented that earnings announcements provide information to the stock market not only about the announcing firm but also about other firms in the same industry. We investigate this phenomenon of intra-industry information transfers to determine whether the price responses for non-announcing firms are appropriate or systematically biased, by investigating the correlation between those price responses and subsequent price responses when those non-announcing firms announce their own earnings a few days later. We find clear evidence of overreaction at the earlier date which is corrected when those firms announce their own earnings.
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