BUS 421 Chapter Notes - Chapter 5: Abnormal Return, Net Income, Event Study

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When security prices respond to accounting information, it has value relevance. Investors want to make their own predictions of future security returns. Implies that empirical research can help to increase usefulness by letting market response guide them as if the information is valuable: social considerations do not invalidate. It leads investors to change their belief and actions: can be measured by the extent of volume or price change following releasing. Predictions about investor behavior in response to financial statement information. I(cid:374)(cid:448)esto(cid:396)s ha(cid:448)e p(cid:396)io(cid:396) (cid:271)eliefs a(cid:271)out a fi(cid:396)(cid:373)"s futu(cid:396)e pe(cid:396)fo(cid:396)(cid:373)ance: based on all available information or publicly available information, de(cid:272)isio(cid:374)s (cid:449)ill (cid:271)e diffe(cid:396)e(cid:374)t, depe(cid:374)di(cid:374)g o(cid:374) i(cid:374)(cid:448)esto(cid:396)s" p(cid:396)efe(cid:396)e(cid:374)(cid:272)es. Investors decide to become more informed by analyzing the income number: depe(cid:374)ds o(cid:374) i(cid:374)(cid:448)esto(cid:396)s" p(cid:396)io(cid:396) (cid:271)eliefs, may interpret the same net income as bad news. I(cid:374)(cid:448)esto(cid:396)s" e(cid:448)aluatio(cid:374)s of the (cid:396)iski(cid:374)ess of the sha(cid:396)es a(cid:374)d (cid:271)eliefs (cid:449)ill (cid:271)e (cid:396)e(cid:448)ised: the volume of shares traded fluctuates when the firm reports its net income.

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