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How do market prices adjust towards stability after a shock? Tracking individual stock prices following their dramatic shakeup after Donald Trump’s surprise election provides an answer. Prices moved overwhelmingly in the appropriate direction on the first post-election day, albeit much too little. Relative prices needed several daily iterations to converge. Three days of historically strong cross-sectional momentum were followed by a brief reversal. Prices then settled. Firm characteristics that explained first-day returns, such as corporate taxes and foreign revenues, accounted for most of the observed momentum. These findings support prominent theories of slow but predictable diffusion of information into prices.


Wagner, Alexander F., Richard J. Zeckhauser, and Alexandre Ziegler. "Paths to Convergence: Stock Price Adjustment After the Trump Election Shock." HKS Faculty Research Working Paper Series RWP17-039, September 2017 (Updated July 2018).