Does limited attention among investors affect stock returns? We compare the response to earnings announcements on Friday, when investor inattention is more likely, to the response on other weekdays. If inattention influences stock prices, we should observe less immediate response and more drift for Friday announcements. Indeed, Friday announcements have a 15% lower immediate response and a 70% higher delayed response. A portfolio investing in differential Friday drift earns substantial abnormal returns. In addition, trading volume is 8% lower around Friday announcements. These findings support explanations of post-earnings announcement drift based on underreaction to information caused by limited attention. * DellaVigna is from the Department of Economics, University of California, Berkeley. Pollet is from the Department of Finance, University of Illinois at Urbana-Champaign. A previous version of the paper was distributed under the title "Strategic Release of Information on Friday: Evidence from Earnings Announcements". We thank John Campbell, David Card, Raj Chetty, James Choi, Kent Daniel, Yonca Ertimur, John Graham, David Hirshleifer, Wei Jiang, Lawrence Katz, David Laibson, Owen Lamont, Ulrike Malmendier, Maria Nondorf, Ashley Pollet, Allen Poteshman, Torsten Persson, Matthew Rabin, Jeremy Stein, Xiao-Jun Zhang, and audiences at Duke (Fuqua), the Hong Kong University of Science and Technology, IIES (Stockholm), London Business School, Northwestern (Kellogg), Stanford University (GSB), University College (London), UC Berkeley, UI Urbana-Champaign, University of Zürich, the Adam Smith Asset Pricing Conference (LBS), the AEA Meetings 2005, the SITE 2004 (Psychology and Economics), and the Yale Conference on Behavioral Science for valuable comments. Jessica Chan, Eric Fleekop, Richard Kim, Clarice Li, Ming Mai, Raymond Son, Matthew Stone, and Terry Yee helped collect the announcement dates from the newswires. Dan Acland, Saurabh Bhargava, and Tatyana Deryugina provided excellent research assistance.Investors have a limited amount of time and cognitive resources to process information. Despite the intuitive appeal of limited attention, little evidence exists on the extent to which the quality of decision-making by investors declines in response to distractions. Incentives, information aggregation across investors, and arbitrageurs may eliminate the effects of limited attention.We examine a decision where attention to new information plays a crucial role, the response to earnings surprises. We compare announcements that occur just before the weekend, on Friday, to announcements on other weekdays. If weekends distract investors and lower the quality of decision-making, the immediate response to Friday earnings surprises should be less pronounced. As investors revisit their decisions in subsequent periods, the information should eventually be incorporated in stock prices. As a result, the delayed response, measured by the post-earnings announcement drift, should be of greater magnitude for Friday announceme...

If actively managed mutual funds suffer from diminishing returns to scale, funds should alter investment behavior as assets under management increase. Although asset growth has little effect on the behavior of the typical fund, we find that large funds and small-cap funds diversify their portfolios in response to growth. Greater diversification, especially for small-cap funds, is associated with better performance. Fund family growth is related to the introduction of new funds that hold different stocks from their existing siblings. Funds with many siblings diversify less rapidly as they grow, suggesting that the fund family may influence a fund's portfolio strategy. Copyright (c) 2008 The American Finance Association.

How do investors respond to predictable shifts in profitability?on demand for different goods, and study how such shifts in demand are incorporated into stock returns.One unusual feature characterizes demographic changes-they are forecastable years in advance. Current cohort sizes, in combination with mortality and fertility tables, generate accurate forecasts of future cohort sizes even at long horizons. Since different goods have distinctive age profiles of consumption, forecastable changes in the age distribution produce forecastable shifts in demand for various goods. These shifts in demand induce predictable changes in profitability for industries that are not perfectly competitive. Consequently, the

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This article provides evidence that equity returns lead credit protection returns at daily and weekly frequencies, whereas credit protection returns do not lead equity returns. Our results indicate that informed traders are primarily active in the equity market rather than the credit default swap (CDS) market. These findings are consistent with standard theories of market selection by informed traders in which market selection is determined partially by transaction costs. We also find that credit protection returns respond more quickly during salient news events (earnings announcements) compared to days with similar equity returns and turnover. This evidence provides support for explanations related to investor inattention.

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helped collect the announcement dates from the newswires. Dan Acland and Saurabh Bhargava provided excellent research assistance. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.

In this paper we provide evidence that equity returns lead credit protection returns at daily and weekly frequencies, while credit protection returns do not lead equity returns. Our results indicate that informed traders are primarily active in the equity market rather than the CDS market. These findings are consistent with standard theories of market selection by informed traders in which market selection is determined partially by transaction costs. We also find that credit protection returns respond more quickly during salient news events (earnings announcement days) compared to days with similarly volatile equity returns. This evidence regarding the response of credit protection returns to news provides support for explanations related to investor inattention. JEL Classification: G12