Product market competition and overreaction to information transfers

要約

I investigate the effect of product market competition on the overreaction to intra-industry information transfers. Thomas and Zhang (2008) provide evidence that the stock market overreacts to the information transfer from the early peers’ earnings announcements. The recent literature including Cheng and Eshleman (2014) and Ramalingegowda et al. (2012) try to explain market overreaction to inter-industry information transfers relying on moderated confidence hypothesis. Based on moderated confidence hypothesis, I predict that overreactions to intra-industry information transfers are stronger (weaker) when they are faced with high (low) product market competitions. Focusing on Japanese stock market, I find that overreaction to first announcer’s earnings announcements is observed only when firms are faced with the higher product market competitions, which is consistent with the prediction.