Patton, Andrew J. and Verardo, Michela (2009) Does beta move with news?: Systematic risk and firm-specific information flows. Discussion paper, 630. Financial Markets Group, London School of Economics and Political Science, London, UK.
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This paper shows that the systematic risk (or "beta") of individual stocks increases by an economically and statistically signi…cant amount on days of firm-specific news announcements, and reverts to its average level two to five days later. We employ intra-daily data and recent advances in econometric theory to obtain daily firm-level estimates of beta for all constituents of the S&P 500 index over the period 1995-2006, and estimate the behavior of beta around the dates of over 22,000 quarterly earnings announcements. We find that the increase in beta is larger for more liquid and more visible stocks, and for announcements with greater information content and higher ex-ante uncertainty. We also find important differences in the behavior of beta across different industries. Our analysis reveals that changes in beta around news announcements are mostly driven by an increase in the covariance of announcing firms with other firms in the market. We provide a simple model of investors’ expectations formation that helps explain our empirical findings: changes in beta can be generated by investors learning about the profitability of a given firm by using information on other firms.
|Item Type:||Monograph (Discussion Paper)|
|Additional Information:||© 2008 The Authors|
|Library of Congress subject classification:||H Social Sciences > HF Commerce
H Social Sciences > HB Economic Theory
|Journal of Economic Literature Classification System:||G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
C - Mathematical and Quantitative Methods > C3 - Econometric Methods: Multiple; Simultaneous Equation Models; Multiple Variables; Endogenous Regressors > C32 - Time-Series Models
G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies
|Sets:||Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Collections > LSE Financial Markets Group (FMG) Working Papers
|Date Deposited:||10 Jul 2009 11:21|
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