IDEAS home Printed from https://ideas.repec.org/a/bla/joares/v44y2006i1p85-112.html
   My bibliography  Save this article

Volume, Opinion Divergence, and Returns: A Study of Post–Earnings Announcement Drift

Author

Listed:
  • JON A. GARFINKEL
  • JONATHAN SOKOBIN

Abstract

This paper examines the relationship between post–earnings announcement returns and different measures of volume at the earnings date. We find that post‐event returns are strictly increasing in the component of volume that is unexplained by prior trading activity. We interpret unexplained volume as an indicator of opinion divergence among investors and conclude that post‐event returns are increasing in ex ante opinion divergence. Our evidence is consistent with Varian [1985], who suggests that opinion divergence may be treated as an additional risk factor affecting asset prices.

Suggested Citation

  • Jon A. Garfinkel & Jonathan Sokobin, 2006. "Volume, Opinion Divergence, and Returns: A Study of Post–Earnings Announcement Drift," Journal of Accounting Research, Wiley Blackwell, vol. 44(1), pages 85-112, March.
    • Handle: RePEc:bla:joares:v:44:y:2006:i:1:p:85-112
    DOI: 10.1111/j.1475-679X.2006.00193.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1475-679X.2006.00193.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1475-679X.2006.00193.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Tarun Chordia & Bhaskaran Swaminathan, 2000. "Trading Volume and Cross‐Autocorrelations in Stock Returns," Journal of Finance, American Finance Association, vol. 55(2), pages 913-935, April.
    2. Harris, Milton & Raviv, Artur, 1993. "Differences of Opinion Make a Horse Race," The Review of Financial Studies, Society for Financial Studies, vol. 6(3), pages 473-506.
    3. Harrison Hong & Terence Lim & Jeremy C. Stein, 2000. "Bad News Travels Slowly: Size, Analyst Coverage, and the Profitability of Momentum Strategies," Journal of Finance, American Finance Association, vol. 55(1), pages 265-295, February.
    4. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    5. William R. Gebhardt & Charles M. C. Lee & Bhaskaran Swaminathan, 2001. "Toward an Implied Cost of Capital," Journal of Accounting Research, Wiley Blackwell, vol. 39(1), pages 135-176, June.
    6. Charles M.C. Lee & Bhaskaran Swaminathan, 2000. "Price Momentum and Trading Volume," Journal of Finance, American Finance Association, vol. 55(5), pages 2017-2069, October.
    7. Amihud, Yakov & Mendelson, Haim, 1986. "Asset pricing and the bid-ask spread," Journal of Financial Economics, Elsevier, vol. 17(2), pages 223-249, December.
    8. Amit Goyal & Pedro Santa-Clara, 2003. "Idiosyncratic Risk Matters!," Journal of Finance, American Finance Association, vol. 58(3), pages 975-1008, June.
    9. Harrison Hong & Jeremy C. Stein, 1999. "A Unified Theory of Underreaction, Momentum Trading, and Overreaction in Asset Markets," Journal of Finance, American Finance Association, vol. 54(6), pages 2143-2184, December.
    10. Michael J. Fleming & Eli M. Remolona, 1999. "Price Formation and Liquidity in the U.S. Treasury Market: The Response to Public Information," Journal of Finance, American Finance Association, vol. 54(5), pages 1901-1915, October.
    11. Fama, Eugene F., 1998. "Market efficiency, long-term returns, and behavioral finance," Journal of Financial Economics, Elsevier, vol. 49(3), pages 283-306, September.
    12. Albert Wang, F., 1998. "Strategic trading, asymmetric information and heterogeneous prior beliefs," Journal of Financial Markets, Elsevier, vol. 1(3-4), pages 321-352, September.
    13. Petersen, Mitchell A. & Fialkowski, David, 1994. "Posted versus effective spreads *1: Good prices or bad quotes?," Journal of Financial Economics, Elsevier, vol. 35(3), pages 269-292, June.
    14. Benston, George J. & Hagerman, Robert L., 1974. "Determinants of bid-asked spreads in the over-the-counter market," Journal of Financial Economics, Elsevier, vol. 1(4), pages 353-364, December.
    15. Karl B. Diether & Christopher J. Malloy & Anna Scherbina, 2002. "Differences of Opinion and the Cross Section of Stock Returns," Journal of Finance, American Finance Association, vol. 57(5), pages 2113-2141, October.
    16. Brockman, Paul & Chung, Dennis Y., 2000. "An empirical investigation of trading on asymmetric information and heterogeneous prior beliefs," Journal of Empirical Finance, Elsevier, vol. 7(5), pages 417-454, December.
    17. Anwer S. Ahmed & Richard A. Schneible & Douglas E. Stevens, 2003. "An Empirical Analysis of the Effects of Online Trading on Stock Price and Trading Volume Reactions to Earnings Announcements," Contemporary Accounting Research, John Wiley & Sons, vol. 20(3), pages 413-439, September.
    18. Ball, Ray, 1992. "The earnings-price anomaly," Journal of Accounting and Economics, Elsevier, vol. 15(2-3), pages 319-345, August.
    19. Kandel, Eugene & Pearson, Neil D, 1995. "Differential Interpretation of Public Signals and Trade in Speculative Markets," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 831-872, August.
    20. Chordia, Tarun & Subrahmanyam, Avanidhar & Anshuman, V. Ravi, 2001. "Trading activity and expected stock returns," Journal of Financial Economics, Elsevier, vol. 59(1), pages 3-32, January.
    21. Lee, Charles M C & Mucklow, Belinda & Ready, Mark J, 1993. "Spreads, Depths, and the Impact of Earnings Information: An Intraday Analysis," The Review of Financial Studies, Society for Financial Studies, vol. 6(2), pages 345-374.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jon A. Garfinkel, 2009. "Measuring Investors' Opinion Divergence," Journal of Accounting Research, Wiley Blackwell, vol. 47(5), pages 1317-1348, December.
    2. Hillert, Alexander & Jacobs, Heiko & Müller, Sebastian, 2018. "Journalist disagreement," Journal of Financial Markets, Elsevier, vol. 41(C), pages 57-76.
    3. John A. Doukas & Phillip J. McKnight, 2005. "European Momentum Strategies, Information Diffusion, and Investor Conservatism," European Financial Management, European Financial Management Association, vol. 11(3), pages 313-338, June.
    4. Kothari, S. P., 2001. "Capital markets research in accounting," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 105-231, September.
    5. Chenchen Li & Rui Li & Xundi Diao & Chongfeng Wu, 2020. "Market segmentation and supply‐chain predictability: evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(2), pages 1531-1562, June.
    6. Lin, Chaonan & Ko, Kuan-Cheng & Lin, Lin & Yang, Nien-Tzu, 2017. "Price limits and the value premium in the Taiwan stock market," Pacific-Basin Finance Journal, Elsevier, vol. 41(C), pages 26-45.
    7. Chuang, Wen-I & Lee, Bong-Soo, 2006. "An empirical evaluation of the overconfidence hypothesis," Journal of Banking & Finance, Elsevier, vol. 30(9), pages 2489-2515, September.
    8. Gebhardt, William R. & Hvidkjaer, Soeren & Swaminathan, Bhaskaran, 2005. "Stock and bond market interaction: Does momentum spill over?," Journal of Financial Economics, Elsevier, vol. 75(3), pages 651-690, March.
    9. Yuan Wu & Taufiq Choudhry, 2018. "Information Uncertainty and Momentum Phenomenon Amidst Market Swings: Evidence From the Chinese Class A Share Market," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 25(2), pages 111-136, June.
    10. Vega, Clara, 2006. "Stock price reaction to public and private information," Journal of Financial Economics, Elsevier, vol. 82(1), pages 103-133, October.
    11. Chen, Jason V., 2023. "The wisdom of crowds and the market's response to earnings news: Evidence using the geographic dispersion of investors," Journal of Accounting and Economics, Elsevier, vol. 75(2).
    12. Güntay, Levent & Hackbarth, Dirk, 2010. "Corporate bond credit spreads and forecast dispersion," Journal of Banking & Finance, Elsevier, vol. 34(10), pages 2328-2345, October.
    13. Markus Glaser & Martin Weber, 2007. "Overconfidence and trading volume," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 32(1), pages 1-36, June.
    14. Bilinski, Pawel & Liu, Weimin & Strong, Norman, 2012. "Does liquidity risk explain low firm performance following seasoned equity offerings?," Journal of Banking & Finance, Elsevier, vol. 36(10), pages 2770-2785.
    15. Ding, David K. & McInish, Thomas H. & Wongchoti, Udomsak, 2008. "Behavioral explanations of trading volume and short-horizon price patterns: An investigation of seven Asia-Pacific markets," Pacific-Basin Finance Journal, Elsevier, vol. 16(3), pages 183-203, June.
    16. Durand, Robert B. & Juricev, Alex & Smith, Gary W., 2007. "SMB -- Arousal, disproportionate reactions and the size-premium," Pacific-Basin Finance Journal, Elsevier, vol. 15(4), pages 315-328, September.
    17. Jaehyung Choi, 2014. "Maximum drawdown, recovery, and momentum," Papers 1403.8125, arXiv.org, revised Sep 2021.
    18. Chemmanur, Thomas & Yan, An, 2017. "Product market advertising, heterogeneous beliefs, and the long-run performance of initial public offerings," Journal of Corporate Finance, Elsevier, vol. 46(C), pages 1-24.
    19. Ledenyov, Dimitri O. & Ledenyov, Viktor O., 2015. "Wave function method to forecast foreign currencies exchange rates at ultra high frequency electronic trading in foreign currencies exchange markets," MPRA Paper 67470, University Library of Munich, Germany.
    20. Lesmond, David A. & Schill, Michael J. & Zhou, Chunsheng, 2004. "The illusory nature of momentum profits," Journal of Financial Economics, Elsevier, vol. 71(2), pages 349-380, February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:joares:v:44:y:2006:i:1:p:85-112. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0021-8456 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.