"In predicting the future, people tend to get anchored by salient past events. Consequently, they underreact."
Shefrin [book]

"The underreaction evidence shows that security prices underreact to news such as earnings announcements. If the news is good, prices keep trending up after the initial positive reaction; if the news is bad, prices keep trending down after the initial negative reaction."
"The momentum evidence briefly described in Chapter 1 is closely related to underreaction, since the positive autocorrelations of returns over relatively short horizons may reflect slow incorporation of news into stock prices."
Shleifer [book] p112

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Top 15

  1. HONG, H. and J.C. STEIN, 1999. A unified theory of underreaction, momentum trading and overreaction in asset markets. The Journal of Finance. [Cited by 363]
  2. IKENBERRY, D.L., J. LAKONISHOK and T. VERMAELEN, 1994. Market underreaction to open market share repurchases. [Cited by 254]
  3. JEGADEESH, N. and S. TITMAN, 1995. Overreaction, delayed reaction, and contrarian profits. Review of Financial Studies. [Cited by 56]
  4. KANG, J.K., et al., 1999. The underreaction hypothesis and the new issue puzzle: evidence from Japan. Review of Financial Studies. [Cited by 38]
  5. ABARBANELL, J. and R. LEHAVY, 2003. … Role of Reported Earnings in Explaining Apparent Bias and Over/Underreaction in Analysts' Earnings …. Journal of Accounting and Economics. [Cited by 34]
  6. POTESHMAN, A.M., 2001. Underreaction, Overreaction, and Increasing Misreaction to Information in the Options Market. The Journal of Finance. [Cited by 25]
  7. BOEHME, R.D. and S.M. SORESCU, 2002. The Long-run Performance Following Dividend Initiations and Resumptions: Underreaction or Product of …. The Journal of Finance. [Cited by 24]
  8. IKENBERRY, D.L. and S. RAMNATH, 2002. Underreaction to Self-Selected News Events: The Case of Stock Splits. Review of Financial Studies. [Cited by 19]
  9. DREMAN, D. and M. BERRY, 1995. Overreaction, underreaction, and the low-P/E effect. Financial Analysts Journal. [Cited by 16]
  10. AMIR, E. and Y. GANZACH, 1998. Overreaction and underreaction in analysts' forecasts. Journal of Economic Behavior and Organization. [Cited by 14]
  11. SHANE, P. and P. BROUS, 2001. Investor and(Value Line) Analyst Underreaction to Information about Future Earnings: The Corrective …. Journal of Accounting Research. [Cited by 14]
  12. MIKHAIL, M.B., B.R. WALTHER and R.H. WILLIS, 2003. The effect of experience on security analyst underreaction. Journal of Accounting and Economics. [Cited by 13]
  13. DAVID, A. and P. VERONESI, 1999. … : Theory and Evidence on the Dynamics of Implied Volatilities and Over-/Underreaction in the Options …. [Cited by 10]
  14. IKENBERRY, D., J. LAKONISHOK and T. VERMAELEN, 1995. Market underreaction to open market repurchases. Journal of Financial Economics. [Cited by 8]
  15. KADIYALA, P. and P.R. RAU, 2004. Investor Reaction to Corporate Event Announcements: Underreaction or Overreaction?. The Journal of Business. [Cited by 7]