Stock price reaction following large one-day price changes: UK evidence

Khelifa Mazouz, Nathan L. Joseph, Joulmer Joulmer

Research output: Contribution to journalArticlepeer-review

Abstract

We examine the short-term price reaction of 424 UK stocks to large one-day price changes. Using the GJR-GARCH(1,1), we find no statistical difference amongst the cumulative abnormal returns (CARs) of the Single Index, the Fama–French and the Carhart–Fama–French models. Shocks bigger or equal to 5% are followed by a significant one-day CAR of 1% for all the models. Whilst shocks smaller or equal to -5% are followed by a significant one-day CAR of -0.43% for the Single Index, the CARs are around -0.34% for the other two models. Positive shocks of all sizes and negative shocks maller or equal to -5% are followed by return continuations, whilst the market is efficient following larger negative shocks. The price reaction to shocks is unaffected when we estimate the CARs using the conditional covariances of the pricing variables.
Original languageEnglish
Pages (from-to)1481-1493
Number of pages13
JournalJournal of Banking and Finance
Volume33
Issue number8
DOIs
Publication statusPublished - Aug 2009

Keywords

  • price shocks
  • overreaction
  • return continuations
  • pricing factors
  • GJR-GARCH(1
  • 1)
  • conditional covariances

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