Market Reactions to Tangible and Intangible Information
NBER Working Paper No. 9743
We decompose stock returns into components attributable to tangible and intangible information. A firm's tangible return is the component of its return attributable to fundamental accounting-performance information, and its intangible return is the component which is orthogonal to this information. Our evidence indicates that intangible information reliably predicts future stock returns. However, in contrast to previous research, we find that tangible returns have no forecasting power. The premia associated with intangible information pose challenges for both traditional asset pricing models and models based on psychological factors.
Published: Kent Daniel & Sheridan Titman, 2006. "Market Reactions to Tangible and Intangible Information," Journal of Finance, American Finance Association, vol. 61(4), pages 1605-1643, 08.