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

Akhtar, S and Faff, Robert and Oliver, B and Subrahmanyam, A (2011) The power of bad : the negativity bias in Australian consumer sentiment announcements on stock returns. Journal of Banking and Finance, 35 (5). pp. 1239-1249. ISSN 0378-4266

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Abstract

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.