Even with hindsight, the ability to explain stock price changes is modest. R2s were calculated for the returns of large stocks as explained by systematic economic influences, by the returns on other stocks in the same industry, and by public firm-specific news events. The average adjusted R2 is only about .35 with monthly data and .20 with daily data. There is little relation between explanatory power and either the firm's size or its industry. There is little improvement in R2 from eliminating all dates surrounding news reports in the financial press. However, the sample kurtosis is quite different when such news events are eliminated, thereby revealing a mixture of return distributions. Non-news dates also indicate the presence of a distributional mixture, perhaps due to traders acting on private information.
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