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Surprise vs anticipated information announcements: Are prices affected differently? An investigation in the context of stock splits

Research output: Contribution to journalJournal article


<mark>Journal publication date</mark>2008
<mark>Journal</mark>Journal of Banking and Finance
Issue number5
Number of pages11
Pages (from-to)643-653
<mark>Original language</mark>English


We compare the long run reaction to anticipated and surprise information announcements using stock splits. Although there is underreaction in both cases, anticipated splits are treated differently to those that are unforeseen. After anticipated splits, cumulative abnormal returns peak at one-and-a-half times the level observed after unanticipated splits although the time taken for the announcement to be absorbed into prices is the same. We explain the difference in underreaction by the degree to which split announcements are believed and hence invested in. The favorable signal conveyed in forecast splits is more credible owing to their better pre-split performance, resulting in a far more pronounced underreaction effect.