What Moves Stock Prices: Another Look

extent to which ex-post movements in aggregate stock prices could be attributed to the arrival of news. The research was motivated by Richard Roll’s (1988) presidential address to the American Finance Association in which he concluded that only about a third of the variation in market indicies could be attributed to economic influences. As part of their research, Cutler, Poterba and Summers examined the fifty largest one-day returns on the S&P 500 index over the period from 1946 through 1987. They found that many of the fifty largest movements in the S&P 500 could not be matched with any convincing account of why future profits or discount rates might have changed. Consequently, the authors concluded that, “Our inability to identify fundamental shocks that accounted for these significant market moves is difficult to reconcile with the view that such shocks account for most of the variation in stock returns.” Studying large market movements is particularly interesting because news important enough to account for a major swing in aggregate stock prices should make it way into media reports in one way or another. This is particularly true for the more recent sample analyzed here. Since the time when Cutler, Poterba and Summer