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Disclosure Risk and Price Drift

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  • HYUN SONG SHIN

Abstract

Disclosures play an apparently critical role in the empirical regularity of the short‐run momentum and long‐run reversal in stock returns. Motivated by this evidence, this paper integrates an analysis of disclosures within an asset pricing model to arrive at a framework in which disclosures and asset returns are jointly determined. Disclosures resolve uncertainty, but the increased information flow also raises the risks during the disclosure period. When disclosures and asset returns are modeled jointly, apparently good news is associated with the upward revision of future disclosure risks. The model generates predictions that have the outward appearance of short‐run momentum and long‐run reversal.

Suggested Citation

  • Hyun Song Shin, 2006. "Disclosure Risk and Price Drift," Journal of Accounting Research, Wiley Blackwell, vol. 44(2), pages 351-379, May.
    • Handle: RePEc:bla:joares:v:44:y:2006:i:2:p:351-379
    DOI: 10.1111/j.1475-679X.2006.00204.x
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    Cited by:

    1. Viral V. Acharya & Peter DeMarzo & Ilan Kremer, 2011. "Endogenous Information Flows and the Clustering of Announcements," American Economic Review, American Economic Association, vol. 101(7), pages 2955-2979, December.
    2. Rosa Lombardi & Daniela Coluccia & Giuseppe Russo & Silvia Solimene, 2016. "Exploring Financial Risks from Corporate Disclosure: Evidence from Italian Listed Companies," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 7(1), pages 309-327, March.
    3. Julio Lobao & Joao Meira Fernandes, 2017. "The 52-Week High and Momentum Investing: Implications for Asset Pricing Models," Annals of Economics and Finance, Society for AEF, vol. 18(2), pages 349-376, November.
    4. repec:cuf:journl:y:2017:v:18:i:1:lobao is not listed on IDEAS
    5. Sergiu Hart & Ilan Kremer & Motty Perry, 2017. "Evidence Games: Truth and Commitment," American Economic Review, American Economic Association, vol. 107(3), pages 690-713, March.
    6. Beyer, Anne & Cohen, Daniel A. & Lys, Thomas Z. & Walther, Beverly R., 2010. "The financial reporting environment: Review of the recent literature," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 296-343, December.
    7. Jin (Ginger) Wu & Lu Zhang & X. Frank Zhang, 2010. "The q‐Theory Approach to Understanding the Accrual Anomaly," Journal of Accounting Research, Wiley Blackwell, vol. 48(1), pages 177-223, March.
    8. Jeroen Suijs, 2008. "On the Value Relevance of Asymmetric Financial Reporting Policies," Journal of Accounting Research, Wiley Blackwell, vol. 46(5), pages 1297-1321, December.
    9. Ilan Guttman & Ilan Kremer & Andrzej Skrzypacz, 2014. "Not Only What but Also When: A Theory of Dynamic Voluntary Disclosure," American Economic Review, American Economic Association, vol. 104(8), pages 2400-2420, August.
    10. Li, Qingyuan & Li, Si & Xu, Li, 2018. "National elections and tail risk: International evidence," Journal of Banking & Finance, Elsevier, vol. 88(C), pages 113-128.
    11. Wadhwa, Kavita & Goodell, John W., 2024. "Political uncertainty and stock price crash risk: Insights from state-elections in an emerging market," International Review of Financial Analysis, Elsevier, vol. 95(PB).
    12. Qiang Gong & Jie Shuai & Huanxing Yang, 2023. "Informational correlation and selective disclosure," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 76(2), pages 645-683, August.
    13. Athanasakou, Vasiliki E. & Strong, Norman C & Walker, Martin, 2014. "The relative concentration of bad versus good news flows," LSE Research Online Documents on Economics 60139, London School of Economics and Political Science, LSE Library.
    14. Ali Nejadmalayeri & Sheri Faircloth & Jeanne Wendel & Surya Chelikani, 2017. "GASB mandatory disclosure rules and municipal bond yield spreads," Review of Quantitative Finance and Accounting, Springer, vol. 49(2), pages 379-405, August.
    15. Chandra Kanodia, 2006. "Discussion of Disclosure Risk and Price Drift," Journal of Accounting Research, Wiley Blackwell, vol. 44(2), pages 381-388, May.
    16. Miles Gietzmann & Adam Ostaszewski, 2014. "Why managers with low forecast precision select high disclosure intensity: an equilibrium analysis," Review of Quantitative Finance and Accounting, Springer, vol. 43(1), pages 121-153, July.
    17. Aghamolla, Cyrus & An, Byeong-Je, 2021. "Voluntary disclosure with evolving news," Journal of Financial Economics, Elsevier, vol. 140(1), pages 21-53.
    18. Paul A. Griffin & Yuan Sun & Steven Cahan, 2013. "Strange bedfellows? Voluntary corporate social responsibility disclosure and politics," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 53(4), pages 867-903, December.
    19. Renato Camodeca & Alex Almici & Umberto Sagliaschi, 2018. "Sustainability Disclosure in Integrated Reporting: Does It Matter to Investors? A Cheap Talk Approach," Sustainability, MDPI, vol. 10(12), pages 1-34, November.
    20. Ilan Kremer & Amnon Schreiber & Andrzej Skrzypacz, 2024. "Disclosing a Random Walk," Journal of Finance, American Finance Association, vol. 79(2), pages 1123-1146, April.

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