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Attention to Market Information and Underreaction to Earnings on Market Moving Days

Published online by Cambridge University Press:  08 October 2018

Badrinath Kottimukkalur Open the ORCID record for Badrinath Kottimukkalur [Opens in a new window]
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Abstract

Post-earnings announcement drift (PEAD) is stronger in firms that release earnings on days when market returns are higher in magnitude. This drift remains robust after controlling for previously documented factors such as Friday releases, the number of simultaneous releases, and price delay measure. Negative earnings surprises drive this drift, and the drift is more pronounced among small stocks, value stocks, and stocks that have low analyst following. Slower analyst response to earnings contributes to the drift. These findings are consistent with investors paying more attention to market information and less attention to firm-specific information due to attention constraints.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 54 , Issue 6 , December 2019 , pp. 2493 - 2516
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2018 

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Footnotes

1

I am grateful to Hendrik Bessembinder (the editor), Jeff Busse, Tarun Chordia, Ilia Dichev, Rohan Ganduri, Clifton Green, Narasimhan Jegadeesh, Andrew Karolyi, Nikhil Paradkar, Lin Peng, Mitch Warachka (the referee), and the seminar participants at American University, Emory University, George Washington University Accounting and Finance Departments, and the Temple University 100th Anniversary Accounting Conference (2018) for helpful comments.

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