What is ‘Reaction’

A reversal in the movement of a security’s price. Reaction is most often associated with a downward movement in the price of a security after a period of upward movement, as investors sell off shares or decrease the volume of buy orders for fear of the security being overvalued. Reactions are likely to be mild and lead to a slight increase or decrease in price, rather than a large change in value. A reaction is similar to a correction but lacks the same intensity.

Explaining ‘Reaction’

Reactions are generally considered to be positive for the overall health of the market, since unending price increases can cause inflation or result in an even larger price drop if a company doesn’t meet expectations. A reaction is likely to prevent events such as runs or high volume sell offs at later dates.

Further Reading

  • Economic Consequence of Fraudulent Financial Reporting of China's Listed Companies——Market Reaction on Publicity of Penalty by CSRC and Ministry of Finance … – [PDF]
  • Uncertainty of climate policies and implications for economics and finance: An evolutionary economics approach – [PDF]
  • Country responses and the reaction of the stock market to COVID-19—A preliminary exposition – [PDF]
  • Relative information asymmetry as a determinant of the market reaction to corporate financing announcements – [PDF]
  • Who makes acquisitions? CEO overconfidence and the market's reaction – [PDF]
  • The Economics of Public Finance – [PDF]
  • The interrelations of finance and economics: Theoretical perspectives – [PDF]
  • The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle – [PDF]