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The Market Sentiment Trend, Investor Inertia, and Post-Earnings Announcement Drift: Evidence from Korea’s Stock Market

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  • Heejeong Shin

    (School of Business, Ewha Womans University, 52 Ewhayeodae-gil, Seodaemun-gu, Seoul 3760, Korea)

  • Hyejeong Shin

    (Department of Business Admnistration, Kyonggi University, 154-42 Gwanggyosan-ro, Yeongtong-gu, Suwon-si, Gyeonggi-do 16227, Korea)

  • Su-In Kim

    (College of Business Management, Hongik University, 2639, Sejong-ro, Jochiwon-eup, Sejong-si 30016, Korea)

Abstract

We investigated whether post-earnings announcement drift (PEAD) in the Korean stock market is related to investor inertial behavior under a directional trend in market sentiment. Given that investors tend to procrastinate due to their belief in the persistence of the current market’s condition and thus underreact to earnings information, we examined whether this investor inertia influences the drift in stock price following an earnings announcement. Our findings show that when the market sentiment continues to shift upwardly (downwardly) over the pre- and post-earnings announcement period, positive (negative) drift occurs. Note that these results are robust to control for the effect of market sentiment at a specific point in time. We suggest that investors do not fully respond to new earnings information due to investor inertial behavior under the market sentiment with a consistent trend. Overall, our study sheds light on a determinant of PEAD as one of the market anomalies in terms of investors’ cognitive bias by documenting the relation between PEAD and investor inertia.

Suggested Citation

  • Heejeong Shin & Hyejeong Shin & Su-In Kim, 2019. "The Market Sentiment Trend, Investor Inertia, and Post-Earnings Announcement Drift: Evidence from Korea’s Stock Market," Sustainability, MDPI, vol. 11(18), pages 1-19, September.
    • Handle: RePEc:gam:jsusta:v:11:y:2019:i:18:p:5137-:d:268871
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    Cited by:

    1. Yongsik Kim, 2020. "Announcement Effects of Convertible and Warrant Bond Issues with Embedded Refixing Option: Evidence from Korea," Sustainability, MDPI, vol. 12(21), pages 1-21, October.
    2. 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.
    3. Fink, Josef, 2021. "A review of the Post-Earnings-Announcement Drift," Journal of Behavioral and Experimental Finance, Elsevier, vol. 29(C).

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