Initial Underreaction Research Articles

Reflections on initial reactions and transmission patterns of hiv/aids in sub-saharan Africa.

The sub-Saharan HIV/AIDS epidemic has since become a global concern, while the pattern and spread of the disease remain an extraordinary phenomenon. Despite glaring statistics and evidence of HIV/AIDS as a major health crisis, there was initial under-reaction, self denial, and subdued population response to the disease in the region in the eighties and early nineties. Many of the risk factors and problems associated with HIV/AIDS, including curable STIs, migration, poverty and gender violence were not adequately addressed. Political, business and other leaders either refused to acknowledge the impact of HIV on society, or believed that their particular sector would ‘weather the storm\'. After HIV became clearly established in South and Eastern Africa\'s general populations in the late eighties, the unity of purpose and commitment needed to limit and reverse the spread of infection were still clearly lacking. Although large health corporations considered the consequences of the epidemic, their attitude to it remained largely ambivalent. This article is a review of HIV/AIDS in its early stages in sub-Saharan Africa. It is a historical perspective of the initial reactions and transmission patterns of a disease that was evident and prevalent in the eighties and early nineties but largely ignored by national and international governments until quite recently. Keywords : Reactions, Sub-Saharan Africa, Transmission, HIV/AIDS, Epidemic. Annals of Biomedical Science Vol. 3 (1&2) 2004: pp. 1-11

Do brokerage houses add value? The market impact of UK sell-side analyst recommendation changes

This paper reports on the first full study investigating the economic role of sell-side analysts’ stock recommendations in the UK market. We also explore whether UK analysts are, in practice, influenced by the same biases as that reported for their US counterparts. We find that share prices are significantly influenced by analysts’ recommendation changes, not only at the time of the recommendation change but also in subsequent months. The price reaction to new sell recommendations is greater than the price reaction to new buy recommendations and exhibits post-recommendation drift which is consistent with initial underreaction to bad news. Returns generated are influenced, cross-sectionally, by factors associated with a firm's information environment and analyst incentives such as size, same-sign earnings forecast revisions and recommendation changes that skip a rank. We find that UK analysts’ investment recommendations in practice appear less susceptible to potential conflicts of interest than their US counterparts. The ratio of new sell to buy recommendations is higher in the UK and a greater proportion of such recommendations are accompanied by same-sign earnings forecast revisions than their equivalents in the US. We find brokerage house investment banking relationships do not appear to impact (adversely) on abnormal returns.

A Trade-Based Analysis of Momentum

This article uses transactions data for all NYSE/AMEX stocks in the period 1983--2002 to study how investors trade in Jegadeesh and Titman's (1993) momentum portfolios. Among small trades, there is an extremely sluggish reaction to the past returns. For instance, an initial small-trade buying pressure exists for loser stocks, and it gradually converts into an intense selling pressure over the following year. The results are consistent with initial underreaction followed by delayed reaction among small traders. Moreover, small-trade imbalances during the formation period significantly affect momentum returns, suggesting that underreaction among small traders contributes to the momentum effect. Large traders, by contrast, show no evidence of underreaction, and large-trade imbalances have little impact on subsequent returns. Overall, the results suggest that momentum could partly be driven by the behavior of small traders. Copyright 2006, Oxford University Press.

A Trade-based Analysis of Momentum

This article uses transactions data for all NYSE/AMEX stocks in the period 1983-2002 to study how investors trade in Jegadeesh and Titman's (1993) momentum portfolios. Among small trades, there is an extremely sluggish reaction to the past returns. For instance, an initial small-trade buying pressure exists for loser stocks, and it gradually converts into an intense selling pressure over the following year. The results are consistent with initial underreaction followed by delayed reaction among small traders. Moreover, small-trade imbalances during the formation period significantly affect momentum returns, suggesting that underreaction among small traders contributes to the momentum effect. Large traders, by contrast, show no evidence of underreaction, and large-trade imbalances have little impact on subsequent returns. Overall, the results suggest that momentum could partly be driven by the behavior of small traders.

Underreaction, Trading Volume and Post earnings announcement drift

In this paper, we develop a simple model in which trading volume contains information about future stock returns. Specifically, our model explains why high trading volume is observed when a firm announces earnings news and how trading volume can be related to the initial underreaction of the stock price. Our model has a clear testable implication that high abnormal trading volume predicts a stronger drift. We test our model’s implication and find strong evidence for the model in the case of positive news. Weaker evidence is found in the case of negative news. We also discuss possible explanations for the asymmetric informativeness of trading volume.