Investor Reaction to News is Asymmetric

Posted by Mike Shell on January 22, 2012

I believe investors react differently to good news than bad news. Investor reaction to good and bad news is asymmetric: bad economic news is likely to play a more significant role in shaping investors’ expectations than good economic news. 

A research paper by Abdulaziz M. Alwathainani titled "Does Bad Economic News Play a Greater Role in Shaping Investors’ Expectations than Good Economic News?" (June 17, 2010) is an example of evidence of our belief. Abdulaziz says:

Investors’ responses to consistency in good and bad news are asymmetric. Bad economic news is likely to play a more significant role in shaping investors’ expectations than good economic news.

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