We propose a novel high-frequency decomposition of daily stock returns into news- and non-news-driven components, and uncover evidence of pervasive stock market underreaction to firm news. Prices tend to drift in the same direction as the initial market response for several days after the news arrival without reversals. A trading strategy exploiting the return drift generates high abnormal returns and remains profitable after transaction costs. To understand the economic mechanism, we find that the return drift is stronger when investors are distracted. Analysts’ slow adjustments of market expectations following firm news also contribute to the market underreaction.

我们提出了一种新的将每日股票收益高频分解为新闻和非新闻驱动的成分，并发现普遍存在的股市对公司新闻反应不足的证据。在消息到来后的几天内，价格往往会朝着与最初市场反应相同的方向漂移，而不会出现逆转。利用收益漂移的交易策略会产生高异常收益，并在交易成本后保持盈利。为了理解经济机制，我们发现当投资者分心时，回报漂移更强。分析师在利好消息后对市场预期的缓慢调整也导致市场反应不足。