NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

A Tough Act to Follow: Contrast Effects In Financial Markets

Samuel M. Hartzmark, Kelly Shue

NBER Working Paper No. 23883
Issued in September 2017
NBER Program(s):Asset Pricing, Corporate Finance

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.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w23883

Published: SAMUEL M. HARTZMARK & KELLY SHUE, 2018. "A Tough Act to Follow: Contrast Effects in Financial Markets," The Journal of Finance, vol 73(4), pages 1567-1613.

Users who downloaded this paper also downloaded* these:
Haddad, Kozak, and Santosh w23886 Predicting Relative Returns
Chinco, Clark-Joseph, and Ye w23933 Sparse Signals in the Cross-Section of Returns
Farhi and Tirole w23930 Shadow Banking and the Four Pillars of Traditional Financial Intermediation
Wright, Kircher, Julîen, and Guerrieri w23884 Directed Search: A Guided Tour
Persson w23823 Attention Manipulation and Information Overload
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us