TY - JOUR

T1 - Surprise vs anticipated information announcements: Are prices affected differently? An investigation in the context of stock splits

AU - Hwang, S

AU - Keswani, A

AU - Shackleton, M B

PY - 2008

Y1 - 2008

N2 - 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.

AB - 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.

U2 - 10.1016/j.jbankfin.2007.04.028

DO - 10.1016/j.jbankfin.2007.04.028

M3 - Journal article

VL - 32

SP - 643

EP - 653

JO - Journal of Banking and Finance

JF - Journal of Banking and Finance

SN - 0378-4266

IS - 5

ER -