This paper presents empirical evidence demonstrating that the risk and expected returns of common stocks typically change in the aftermath of large price movements. When temporary changes in uncertainty follow major financial events, subsequent stock returns should be positively correlated with...

This paper considers two aspects of the tendency for systematic risk to change during the period surrounding a firm-specific event. First, a statistic allowing for heteroskedasticity is presented as a means of more precisely testing for the incidence of structural change in the market model....