Title: The relationship between uncertainty and the market reaction to information: Is it influenced by stock-specific characteristics?

Authors: Ron Bird; Krishna Reddy; Danny Yeung

Addresses: Paul Woolley Centre, University of Technology Sydney, P.O. Box 123, Broadway 2007, Australia; Waikato Management School, University of Waikato, Private Bag 3105, Hamilton, New Zealand ' Waikato Management School, University of Waikato, Private Bag 3105, Hamilton 3240, New Zealand ' Paul Woolley Centre, University of Technology, Sydney, P.O. Box 123, Broadway 2007, Australia

Abstract: In recent times we have seen an increased interest in separating information signals into good and bad news in order to gain improved insight into the reaction of investors. When we make this separation we find that the behaviour of investors oscillates between being optimistic and pessimistic in their interpretation of information somewhat driven by the prevailing level of uncertainty at the time of the information release. We go on to show that investors' reaction to information is not only conditioned by uncertainty but also a significant number of firm-specific characteristics. The reaction to bad news is greatest when it is released at times of high uncertainty by large, less liquid, low idiosyncratic risk, low leveraged, value stocks that are experiencing abnormally high trading volume. The reaction to good news is greatest when it is released at time of low market uncertainty by large, less liquid, high idiosyncratic risk, low leveraged, value stocks that are experiencing abnormally high trading.

Keywords: investor reaction; information; news; uncertainty; stock characteristics; investor behaviour; stock markets; market reaction.

DOI: 10.1504/IJBAF.2014.061441

International Journal of Behavioural Accounting and Finance, 2014 Vol.4 No.2, pp.113 - 132

Received: 30 Nov 2012
Accepted: 06 Nov 2013
Published online: 30 Apr 2015 *

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