Executive
Summary: Abnormal Stock Returns
From time to time, there are market occurrences which swing
cause market over-reactions. This tool helps to gauge how much of those swings
are cause by actual market occurrences and what portion is attributable to over-reactions
by the market.
A tool like this would be helpful in determining which
stocks are overvalued and inflated. An examples when a tool like this would be
helpful is illustrated by Google on January 31, 2008. Google planned to release
their earnings that day at 4:01 PM but hit the submit button too soon and
released earlier that afternoon. This act inherently wasn’t necessarily
detrimental but the fact that they missed their earnings was. This sent the
market into a frenzy and Google’s stock fell 9% in roughly 4 hours. Much of
this swing was due to investors scrambling to protect themselves.
This tool helps to gauge how much of a stock swing is truly
due to stock fluctuations and what part is abnormal.
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