News Events, Information Acquisition, and Serial Correlation
2002, Journal of Business
Craig W. Holden, Avanidhar Subrahmanyam
We develop a model that accounts for medium term continuation (momentum) in asset returns by analyzing information
acquisition about news events (such as earnings announcements) in a multi-period setting. As more and more agents
become informed about news events, temporal uncertainty is resolved endogenously through market prices over time,
which leads to positive autocorrelations in asset returns. We empirically estimate serial correlations over medium-term
horizons for portfolios sorted by firm size and past stock performance and find that calibration of serial correlations in
our model spans the range of empirically estimated correlations.
Holden, Craig W. and Avanidhar Subrahmanyam (2002), "News Events, Information Acquisition, and Serial Correlation," Journal of Business, Vol. 1, pp. 1-32.