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March Market Madness: The Impact of Value†Irrelevant Events on the Market Pricing of Earnings News

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  • Michael S. Drake
  • Kurt H. Gee
  • Jacob R. Thornock

Abstract

Each year, the NCAA basketball tournament (March Madness) is a daytime distraction for millions of people, providing a largely exogenous shock to investor attention. We investigate whether March Madness influences the market response to earnings by diverting investor attention away from earnings news. We find that the price reaction to earnings news released during March Madness is muted. This result generally holds across several samples and additional analyses. We also find that the result is more muted for low institutional ownership firms, consistent with the effect being driven by less†sophisticated investors. Furthermore, we find that it takes the market 30 to 60 days to correct for the distraction effect. Overall, we provide a unique test of the theory of limited attention by documenting that extraneous events can have a significant impact on the pricing of earnings.

Suggested Citation

  • Michael S. Drake & Kurt H. Gee & Jacob R. Thornock, 2016. "March Market Madness: The Impact of Value†Irrelevant Events on the Market Pricing of Earnings News," Contemporary Accounting Research, John Wiley & Sons, vol. 33(1), pages 172-203, March.
    • Handle: RePEc:wly:coacre:v:33:y:2016:i:1:p:172-203
    DOI: 10.1111/1911-3846.12149
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    Cited by:

    1. Grant, Andrew & Kalev, Petko S. & Subrahmanyam, Avanidhar & Joakim Westerholm, P., 2022. "Retail trading activity and major lifecycle events: The case of divorce," Journal of Banking & Finance, Elsevier, vol. 135(C).
    2. Wang, Jianxin, 2022. "Market distraction and near-zero daily volatility persistence," International Review of Financial Analysis, Elsevier, vol. 80(C).
    3. Md Miran Hossain & Babak Mammadov & Hamid Vakilzadeh, 2022. "Wisdom of the crowd and stock price crash risk: evidence from social media," Review of Quantitative Finance and Accounting, Springer, vol. 58(2), pages 709-742, February.
    4. Ehrmann, Michael & Jansen, David-Jan, 2022. "Stock return comovement when investors are distracted: More, and more homogeneous," Journal of International Money and Finance, Elsevier, vol. 129(C).
    5. Neilson, Jed J., 2022. "Investor information gathering and the resolution of uncertainty," Journal of Accounting and Economics, Elsevier, vol. 74(1).
    6. Drummond, Philip A., 2023. "Market quality surrounding anticipated distraction events: Evidence from the FIFA World Cup," Journal of Financial Markets, Elsevier, vol. 63(C).
    7. Baltakys, Kęstutis & Kanniainen, Juho & Saramäki, Jari & Kivelä, Mikko, 2023. "Investor trade allocation patterns in stock markets," Journal of Economic Behavior & Organization, Elsevier, vol. 210(C), pages 191-209.
    8. Janhuba, Radek, 2019. "Do victories and losses matter? Effects of football on life satisfaction," Journal of Economic Psychology, Elsevier, vol. 75(PB).
    9. Li, Jiacui, 2022. "Endogenous inattention and risk-specific price underreaction in corporate bonds," Journal of Financial Economics, Elsevier, vol. 145(2), pages 595-615.
    10. Blankespoor, Elizabeth & deHaan, Ed & Marinovic, Iván, 2020. "Disclosure processing costs, investors’ information choice, and equity market outcomes: A review," Journal of Accounting and Economics, Elsevier, vol. 70(2).
    11. Shafi, Kourosh & Mohammadi, Ali, 2020. "Too gloomy to invest: Weather-induced mood and crowdfunding," Journal of Corporate Finance, Elsevier, vol. 65(C).

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