Russia’s shutdown of McDonalds shows how negative news on one company can cause other businesses to suffer as well, but with a delay – an insight that could help small investors reap significant trading profits.
My paper “Market Reaction to Corporate Press Releases,” co-authored with Andreas Neuhierl and Bernd Schlusche, shows that stock prices react to news very quickly. Additional trading will likely only contribute to an overreaction that will be reversed in the future, leaving you with a loss.
It would be rational to evaluate the outcomes of all past decisions exclusively on their expected future payoffs and costs and not on the past, which should be irrelevant. Reality proves however that most people are not rational.