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A Behavioral Shift in Earnings Response After Regulation FD

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  • Seung Woog Kwag

Abstract

The Regulation Fair Disclosure of 1999 (FD) intends to promote the full and fair disclosure of price information and further prevent insider trading. As a result, the public investors are expected to be empowered with more quality and relevant information. This study examines a behavioral shift in investor reaction to quarterly earnings announcements after the passage of the FD due to the expected improvement in information asymmetry. The empirical findings suggest that investors show a behavioral shift after the FD in response to biased earnings forecasts. Investors become more active in that they place a discount on optimistic earnings forecasts during the earnings announcement period. It is less obvious that they place a premium on pessimistic forecasts. Another coherent finding is that investors attempt to correct for the announcement-period mis-adjustments during the post-announcement period.

Suggested Citation

  • Seung Woog Kwag, 2014. "A Behavioral Shift in Earnings Response After Regulation FD," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 15(3), pages 184-194, July.
    • Handle: RePEc:taf:hbhfxx:v:15:y:2014:i:3:p:184-194
    DOI: 10.1080/15427560.2014.939749
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