What Hundreds of Economic News Events Say About Belief Overreaction in the Stock Market
We measure the nature and severity of a variety of belief distortions in market reactions to hundreds of economic news events by synthesizing structural estimation with algorithmic machine learning to quantify bias. We find that investors systematically overreact to perceptions about multiple fundamental shocks, a phenomenon we show often dampens rather than amplifies market volatility via a shock composition effect. Such effects imply that the stock market can underreact to news, even when investors overreact to all shocks.
-
-
Copy CitationFrancesco Bianchi, Sydney C. Ludvigson, and Sai Ma, "What Hundreds of Economic News Events Say About Belief Overreaction in the Stock Market," NBER Working Paper 32301 (2024), https://doi.org/10.3386/w32301.Download Citation
-
Related
More from the NBER
In addition to working papers, the NBER disseminates affiliates’ latest findings through a range of free periodicals — the NBER Reporter, the NBER Digest, the Bulletin on Health, and the Bulletin on Entrepreneurship — as well as online conference reports, video lectures, and interviews.
