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Please use this identifier to cite or link to this item: http://hdl.handle.net/2108/81

Title: The stability of financial markets under ordinary and extreme news: insights from the dynamics of the implied equity risk premium.
Authors: Bagella, Michele
Becchetti, Leonardo
Ciciretti, Rocco
Keywords: implied risk premium
analysts forecast error
September 11
Issue Date: 10-Dec-2004
Publisher: CEIS
Series/Report no.: Quaderni CEIS
Abstract: The paper investigates the stability of stock markets by exploring how specific and aggregate shocks generate reassessment of investors and analysts expectations on earnings forecasts and on the fundamental value of equities. In this paper we evaluate the effects of this combined reaction on the implied equity risk premium extracted from a standard two-stage dividend discount (DD) model. Our findings show: i) substantial overreaction of investors to both downward and upward firm specific forecast revisions, plus overreaction to changes in GDP and to the announcements of the Consumer and Business Confidence indicator before the burst of the March 2000 stock market bubble; ii) a fall in the positive overreaction to upward earning forecast revisions and GDP changes after the stock bubble burst and a loss of significance of overreaction to upward forecast revisions and to announcements of the Consumer Confidence Index after the 9/11 terrorist attack. These findings appear broadly consisten...
URI: http://hdl.handle.net/2108/81
Appears in Collections:Quaderni
Research in Economics and Institutions

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