The relationship between uncertainty and the market reaction to information: Is it influenced by stock-specific characteristics?

In recent times we have seen an increased interest in separating information signals into good and bad news in order to gain improved insight into the reaction of investors. When we make this separation we find that the behaviour of investors oscillates between being optimistic and pessimistic in their interpretation of information somewhat driven by the prevailing level of uncertainty at the time of the information release. We go on to show that investors' reaction to information is not only conditioned by uncertainty but also a significant number of firm-specific characteristics. The reaction to bad news is greatest when it is released at times of high uncertainty by large, less liquid, low idiosyncratic risk, low leveraged, value stocks that are experiencing abnormally high trading volume. The reaction to good news is greatest when it is released at time of low market uncertainty by large, less liquid, high idiosyncratic risk, low leveraged, value stocks that are experiencing abnormally high trading.