Do size and unobservable company factors explain stock price reversals?

Robert Cressy, Hisham Farag

    Research output: Contribution to journalArticlepeer-review

    3 Citations (Scopus)


    We use daily price data from the Egyptian stock market and a Loser portfolio of 20 IPOs from the late 1990s that experienced dramatic 1-day price falls in the period 2004 to 2007 to estimate a 2-way fixed effects model of CARs. Observable covariates are company size and turnover growth and unobservables company and period fixed effects. Our results provide evidence of significant price reversal over the first 40 post-event days. Firm size is negatively correlated with post-event CARs, consistently with the argument that small firms have a stronger tendency to price-reverse due to greater informational opacity. But permanent, unobservable company-specific factors, account for a much larger percentage of post-event variation in stock prices and indicate an underlying heterogeneity in investor responses to initial price falls not uncovered before in the literature. Strong negative company effects following a price fall are found to presage reinforcing ‘long term’ price falls and strong positive company effects to presage countervailing ‘long term’ price reversals. At the extremes these company effects are sufficiently large to suggest that a trading strategy based on them would be profitable.
    Original languageEnglish
    Pages (from-to)1-21
    Number of pages21
    JournalJournal of Economics and Finance
    Issue number1
    Publication statusPublished - 1 Jan 2011


    Dive into the research topics of 'Do size and unobservable company factors explain stock price reversals?'. Together they form a unique fingerprint.

    Cite this