The adjustment of stock prices to Wall Street journal corrections

• Author: John A. Helmuth,John S. Zdanowicz,Ashok J. Robin
• DOI: http://doi.org/10.1016/1058-3300(94)90006-X
• Date: 01 September 1994
• Published date: 01 September 1994

Review of Financial Economics

1994, Vol. 4, No. 2.69-17

The Adjustment of Stock Prices to Wall

Street Journal Corrections

John A. Helmuth

Rochester Institute of Technology

Ashok J. Robin

Rochester Institute of Technology

John S. Zdanowicz

Florida International University

This paper employs standard event study methodology to study the

response of stock prices to relatively unanticipated events in the ‘Correc-

tions and Amplifications’ section of the Wall Street Journal. Our results

indicate that the market reaction to these corrections is statistically sig-

nificant. We also find that the market fully adjusts to all new information

on the day of the unanticipated Wall Street Journal correction. We find

no discernible pattern of abnormal returns after the event day. The main

implication of these findings is that researchers conducting event studies

and using the Wall Street Journal Index for event dates, should screen their

data for corrections.

This paper investigates the adjustment of stock prices to corrections of event

announcements that are reported in the Wall Street Journal (WSJ). Typically, the

WSJ reports hundreds of corrections in its “Corrections and Amplifications” column

annually. Many financial research studies have employed the WSJ to determine the

exact date on which new information related to the event is disseminated into the

market. This paper will test for the information content of the corrected information,

and the implication of not screening for announcements of corrections subsequent

to the initial event announcement date in the WSJ.

This study provides insight in several areas. The main contribution is in

providing information on the relevance of WSJ corrections to researchers conduct-

ing event studies. The results of this study indicate that there is a statistically

significant market reaction in response to WSJ corrections. Since the WSJ index is

Direct all correspondence to: John A. Helmuth, Rochester Institute of Technology, College of Business,

Rochester, NY 14623.

Copyright 0 1994 by JAI Press Inc. 1058-3300

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