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Do Individual Investors Drive Post-Earnings Announcement Drift? Direct Evidence from Personal Trades

  • David Hirshleifer

    (Fisher College of Business, Ohio State University)

  • James N. Myers

    (University of Illinois at Urbana- Champaign)

  • Linda A. Myers

    (University of Illinois at Urbana- Champaign - Department of Accountancy)

  • Siew Hong Teoh

    (Fisher College of Business, Ohio State University)

This study examines whether individual investors are the source of post- earnings announcement drift (PEAD). We provide evidence on how individual investors trade in response to extreme quarterly earnings surprises and on the relation between individual investors' trades and subsequent abnormal returns. We find no evidence that either individuals or any sub-category of individuals in our sample cause PEAD. Individuals are significant net buyers after both negative and positive earnings surprises. There is no indication that trading by any of our investor sub-categories explains the concentration of drift at subsequent earnings announcement dates. While post-announcement individual net buying is a significant negative predictor of stock returns over the next three quarters, individual investor trading fails to subsume any of the power of extreme earnings surprises to predict future abnormal returns.

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File URL: http://econwpa.repec.org/eps/fin/papers/0412/0412003.pdf
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Paper provided by EconWPA in its series Finance with number 0412003.

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Length: 40 pages
Date of creation: 04 Dec 2004
Date of revision:
Handle: RePEc:wpa:wuwpfi:0412003
Note: Type of Document - pdf; pages: 40. PDF
Contact details of provider: Web page: http://econwpa.repec.org

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  1. De Long, J. Bradford & Shleifer, Andrei & Summers, Lawrence H. & Waldmann, Robert J., 1990. "Noise Trader Risk in Financial Markets," Scholarly Articles 3725552, Harvard University Department of Economics.
  2. Kent Daniel & David Hirshleifer & Avanidhar Subrahmanyam, 1998. "Investor Psychology and Security Market Under- and Overreactions," Journal of Finance, American Finance Association, vol. 53(6), pages 1839-1885, December.
  3. David Hirshleifer, 2001. "Investor Psychology and Asset Pricing," Journal of Finance, American Finance Association, vol. 56(4), pages 1533-1597, 08.
  4. Brad M. Barber & Terrance Odean, 2000. "Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors," Journal of Finance, American Finance Association, vol. 55(2), pages 773-806, 04.
  5. Demski, Joel S. & Feltham, Gerald A., 1994. "Market response to financial reports," Journal of Accounting and Economics, Elsevier, vol. 17(1-2), pages 3-40, January.
  6. Grinblatt, Mark & Keloharju, Matti, 2000. "The investment behavior and performance of various investor types: a study of Finland's unique data set," Journal of Financial Economics, Elsevier, vol. 55(1), pages 43-67, January.
  7. Ball, Ray & Bartov, Eli, 1996. "How naive is the stock market's use of earnings information?," Journal of Accounting and Economics, Elsevier, vol. 21(3), pages 319-337, June.
  8. JOSHUA D. COVAL & David Hirshleifer & TYLER G. SHUMWAY, 2004. "Can Individual Investors Beat the Market?," Finance 0412005, EconWPA.
  9. Karpoff, Jonathan M, 1986. " A Theory of Trading Volume," Journal of Finance, American Finance Association, vol. 41(5), pages 1069-87, December.
  10. Lee, Charles M. C., 1992. "Earnings news and small traders : An intraday analysis," Journal of Accounting and Economics, Elsevier, vol. 15(2-3), pages 265-302, August.
  11. Fischer, Paul E. & Verrecchia, Robert E., 1999. "Public information and heuristic trade," Journal of Accounting and Economics, Elsevier, vol. 27(1), pages 89-124, February.
  12. Terrance Odean, 1999. "Do Investors Trade Too Much?," American Economic Review, American Economic Association, vol. 89(5), pages 1279-1298, December.
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