n Studies in Economics and Econometrics - Share market reaction to good and bad news : evidence from South African consensus earnings forecasts

Volume 28, Issue 3
  • ISSN : 0379-6205


Investors often question the extent to which the state of the market affects returns on investment and seek answers as to whether the market response to bad and good news is dependent on the level of the market. If this is true, investors with forecasting ability can beat the market by identifying the state of the market before investing. This would be in violation of the efficient market hypothesis.

This study uses the Conrad, Cornell and Landsman (2002) model to investigate whether the share price response good or bad news in South Africa changes with the relative level of the market. Conrad et al. (2002) found sufficient evidence that the market's response to bad news increases with the increase in the relative level of the market.
The results of this study are directly opposite to the findings of Conrad et al. (2002) and existing research. The market's reaction to bad news is almost the same in a positive or negative market state. On the other hand, the market's reaction to good news is slightly stronger in a good market state than in a negative state.

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