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

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  • Kottimukkalur, Badrinath

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.

Suggested Citation

  • Kottimukkalur, Badrinath, 2019. "Attention to Market Information and Underreaction to Earnings on Market Moving Days," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 54(6), pages 2493-2516, December.
    • Handle: RePEc:cup:jfinqa:v:54:y:2019:i:6:p:2493-2516_7
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    Cited by:

    1. Fink, Josef, 2021. "A review of the Post-Earnings-Announcement Drift," Journal of Behavioral and Experimental Finance, Elsevier, vol. 29(C).
    2. Xu, Liao & Zhang, Xuan & Zhao, Jing, 2023. "Limited investor attention and biased reactions to information: Evidence from the COVID-19 pandemic," Journal of Financial Markets, Elsevier, vol. 62(C).
    3. Qian Chen & Xiang Gao & Gangchen Liu, 2021. "Limited Attention and Post-Earnings Announcement Drift: Evidence from China s Stock Market," International Journal of Economics and Financial Issues, Econjournals, vol. 11(1), pages 1-17.
    4. Josef Fink, 2020. "A Review of the Post-Earnings-Announcement Drift," Working Paper Series, Social and Economic Sciences 2020-04, Faculty of Social and Economic Sciences, Karl-Franzens-University Graz.
    5. Martineau, Charles, 2021. "Rest in Peace Post-Earnings Announcement Drift," SocArXiv z7k3p, Center for Open Science.
    6. Du, Xiuli & Ao, Zhu & Chai, Yiwei & Ge, Shilong, 2023. "Economic policy uncertainty, investor attention and post-earnings announcement drift," International Review of Financial Analysis, Elsevier, vol. 87(C).

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