Limited Attention and the Earnings Announcement Returns of Past Stock Market Winners
Author | : David Aboody |
Publisher | : |
Total Pages | : 43 |
Release | : 2008 |
ISBN-10 | : OCLC:1290300607 |
ISBN-13 | : |
Rating | : 4/5 (07 Downloads) |
Download or read book Limited Attention and the Earnings Announcement Returns of Past Stock Market Winners written by David Aboody and published by . This book was released on 2008 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: We document that stocks with the strongest prior 12-month returns experience a significant average market-adjusted return of 1.58 percent during the five trading days before their earnings announcements and a significant average market-adjusted return of 1.86 percent in the five trading days afterward. These returns remain significant even after accounting for transactions costs. We empirically test two possible explanations for these anomalous returns. The first is that unexpectedly positive news hits the market over the few days prior to these firms' earnings announcements, and that unexpectedly negative news comes out just afterwards. The second possibility is that stocks with sharp run-ups tend to attract individual investors' attention, and investment dollars, particularly before their earnings announcements. We do not find evidence for an information-based explanation; however, our analysis suggests the possibility that the trading decisions of individual investors are at least partly responsible for the return pattern we observe.