Dr Adam Zaremba, from the Department of Investments and Financial Markets, the Poznań University of Economics, is a co-author of an article published in the Journal of Financial Economics. It is a journal which, as the Journal of Finance, belongs to the so-called top-tier group in the area of finance.
The work by Zaremba and Nusretem Cakici of Fordham University in New York deals with the materiality theory, which assumes that investors focus their attention on the most prominent price movements. Exceptionally high or low rates of return are memorable, creating a distorted picture of the stock market. As a consequence, distorted investor expectations may lead to the formation of price bubbles and anomalies in the stock market.
Cakici and Zaremba showed that the significance theory can influence the level of stock prices on the stock exchanges among the smallest listed companies, in risky countries and during stock market crashes. Apart from these states and segments, it doesn’t really matter.
