I investigate investors’ response to market-wide and firm-specific signals during their Bayesian updating process by observing cross-sectional return patterns. My empirical results show that investors’ overconfidence, that is, an over-response to a signal, is more likely to occur for mature firms that are relatively easy to price: large firms, value firms, dividend-paying firms, firms with more tangible assets, firms with little external financing, and firms with low sales growth. The characteristics of these firms stand in sharp contrast with those of firms that are more likely to be affected by sentiment. I also find that the effects of investors’ overconfidence on returns are reversed immediately. Therefore, the over-precision in the market-wide and firm-specific signals that are investigated in this study is not responsible for various anomalies, such as the value premium that necessitates a delay in the response or reversals over longer horizons. Instead the unexpected response to a signal by overconfident investors explains a significant proportion of short-term return reversals.