The power of bad: The negativity bias in Australian consumer sentiment announcements on stock returns

This paper examines the equity market reaction to the monthly release of Australian consumer sentiment news. Our results indicate that consumer sentiment has valuable information content. Further, we document a version of the “negativity effect” (from the psychology literature) in which, upon announ...

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Bibliographic Details
Published in:Journal of banking & finance 2011-05, Vol.35 (5), p.1239-1249
Main Authors: Akhtar, Shumi, Faff, Robert, Oliver, Barry, Subrahmanyam, Avanidhar
Format: Article
Language:English
Subjects:
Australia
Consumer behaviour
Consumer Confidence Index
Economic behaviour
Equity
G14
G14 Investor sentiment Stock market returns Market efficiency
Investor sentiment
Market efficiency
Psychological factors
Rates of return
Securities markets
Stock market returns
Stock returns
Studies
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Summary:This paper examines the equity market reaction to the monthly release of Australian consumer sentiment news. Our results indicate that consumer sentiment has valuable information content. Further, we document a version of the “negativity effect” (from the psychology literature) in which, upon announcement of bad (good) sentiment news, the equity market experiences a significant negative (no) announcement day effect. Notably, we find that the market recovers from the bad news shock relatively quickly post-announcement. The results are robust to a broad range of additional tests.
ISSN:0378-4266
1872-6372
DOI:10.1016/j.jbankfin.2010.10.014