Asymmetries of Stock Returns and Price Delay

Abstract

Prior studies have demonstrated that stock returns exhibit non-linear dependence -- down-side beta different from upside beta -- and asymmetric correlations -- higher correlations during periods of negative market moves than positive market moves. We provide empirical evidence that these asymmetries are intertwined with delayed pricing of negative and positive news. We demonstrate that negative news are incorporated in stock prices faster than positive news, and that idiosyncratic news are more likely to be priced during periods when systematic news are positive. Our results add to the growing evidence that investors have finite attention budgets to process information. They also imply that investors prioritize negative over positive news -- an effect not yet fully explained by theory.