A Tough Act to Follow: Contrast Effects In Financial Markets / Samuel M. Hartzmark, Kelly Shue.

Format:

Book

Author/Creator:

Hartzmark, Samuel M.

Contributor:

National Bureau of Economic Research.

Shue, Kelly.

Series:

Working Paper Series (National Bureau of Economic Research) no. w23883.

NBER working paper series no. w23883

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

A Tough Act to Follow

Tough Act to Follow

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2017.

Summary:

A contrast effect occurs when the value of a previously-observed signal inversely biases perception of the next signal. We present the first evidence that contrast effects can distort prices in sophisticated and liquid markets. Investors mistakenly perceive earnings news today as more impressive if yesterday's earnings surprise was bad and less impressive if yesterday's surprise was good. A unique advantage of our financial setting is that we can identify contrast effects as an error in perceptions rather than expectations. Finally, we show that our results cannot be explained by a key alternative explanation involving information transmission from previous earnings announcements.

Notes:

Print version record

September 2017.