Bridge over ocean
1 March 2012 Financial Analysts Journal Volume 68, Issue 2

What Makes Stock Prices Move? Fundamentals vs. Investor Recognition

  1. Scott Richardson
  2. Richard Sloan
  3. Haifeng You, CFA

The authors synthesized and extended recent research demonstrating that investor recognition is a distinct, significant determinant of stock price movements. Realized stock returns are strongly positively related to changes in investor recognition, and expected returns are strongly negatively related to the level of investor recognition. Moreover, companies time their financing and investing decisions to exploit changes in investor recognition. Investor recognition dominates stock price movements over short horizons, whereas fundamentals dominate over longer horizons.

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