It is hypothesized in many accounting and finance research studies that the news release has valuation implications. Based on an examination of firm-specific news reported in the 1983 Wall Street Journal Index, it is demonstrated that the distribution of Wall Street Journal news-conditional residual returns is different from the distribution of returns when such news is absent. This finding leads to a proposition of a news-conditional model of the process that generates security returns as an alternative to models that are commonly used in previous event studies. Results suggest that standardized prediction errors and squared standardized prediction errors from the news-conditional model have a tendency to be larger in absolute value than those created from a conventional market model.
Full text: The Accounting Review, Jul 1988
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