Driven to Distraction: Extraneous Events and Underreaction to Earnings News

Hirshleifer, David; Lim, Sonya S.; Teoh, Siew Hong

doi:10.2139/ssrn.891735

Cited by 226 publications

(394 citation statements)

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“…Lin and Tamvakis (2010) Akin to the phenomenon of post earnings announcement drift (Hirshleifer et al, 2009) the e ect of an EP decision on EUA prices may not end on the day of the decision itself, but may continue for a short period after. Therefore we select 11 days in keeping with the ratio of Lin and Tamvakis (2010).…”

Section: Lin and Tamvakismentioning

confidence: 99%

“…A possible explanation for the strong e ect of EP decisions on EUA prices during times of low media exposure can be found in the Investor Attention Hypothesis (Barber and Odean, 2008;Da et al, 2011;Hirshleifer et al 2009Hirshleifer et al , 2013Vozlyublennaia, 2014). In an equity context this proposes that since attention is a limited resource, investors will make decisions about rms to which their attention has rst been drawn, and that until their attention is drawn to a stock its price will only slowly re ect new information due to lack of trading interest.…”

Section: Introductionmentioning

confidence: 99%

“…The impact on returns is determined by an event study which shows that on days on which the EP makes a decision there are, on average, signi cant negative returns, and these negative returns become cumulatively greater in the following week. An explanation for the cumu-6 Data from Bloomberg, EU ETS Factsheet at http://ec.europa.eu/clima/publications/docs/factsheet_ets_en.pdf, and the Energy Information Administration EIA at http://www.eia.gov/ all accessed on 9th June 2015 6 lative reduction in prices is that this may be similar to the post earnings announcement drift (Bernard and Thomas, 1989;Hirshleifer et al, 2009).…”

Section: Introductionmentioning

confidence: 99%

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Influences from the European Parliament on EU emissions prices

et al. 2016

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The decisions of the European Parliament (EP) are shown to in uence both EU emission allowance (EUA) prices and volatility. Reductions in price and increases in volatility are observed when EP decisions are (i) not partypolitical in origin, (ii) made during times of low market sentiment, or (iii) made during times of low market attention. Daily EUA prices from 2007 to 2014 are used in the study, with decisions analysed using an event study approach for price impact, and a GARCH speci cation for volatility impact.Our ndings suggest the need for policymakers to improve communication of long-term strategies for the EUA market. This aims to reduce the evident ongoing uncertainty experienced by traders around each decision made by the EP. The nding that sentiment and market attention at the time of an EP decision in uences the market's reaction indicates a need to consider market dynamics in terms of decision timing, so that market turbulence is not an unintended by-product of an EP decision. Indeed some form of medium term forward guidance may be called for.JEL: Q58, G14, C12

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Section: Lin and Tamvakismentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Influences from the European Parliament on EU emissions prices

et al. 2016

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“…Recent research, for example, has shown evidence of inattention to nonsaliently displayed prices (Hossain and Morgan 2006, Lee and Malmendier 2010, Simonsohn and Ariely 2008, to information that competes with attention grabbing or abundant information (DellaVigna and Pollet 2009, Eisensee and Strömberg 2007, Hirshleifer et al 2009), and to future events occurring beyond immediate planning horizons (Che et al 2007, DellaVigna andPollet 2007).…”

Section: Introductionmentioning

confidence: 99%

eBay's Crowded Evenings: Competition Neglect in Market Entry Decisions

Simonsohn

2010

SSRN Journal

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D o firms neglect competition when making entry decisions? This paper addresses this question analyzing the time of day at which eBay sellers set their auctions to end. Consistent with competition neglect, it is found that (i) a disproportionate share of auctions end during peak bidding hours, (ii) such hours exhibit lower selling rates and prices, and (iii) peak listing is more prevalent among sellers likely to have chosen ending time strategically, suggesting disproportionate entry is a mistake driven by bounded rationality rather than mindlessness. The results highlight the importance for marketing researchers of assessing rather than assuming the rationality of firm behavior.

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“…Long-term store contains learned sequences of information processing that may be initiated by a control process or by environmental or internal information input but that are then executed automatically with few demands upon the capacity of short-term store [21][22][23][24][25][26][27][28][29][30]. This automatic process can be activated in response to a particular input configuration, where the inputs may be externally or internally generated and include the general situational context, or it will be activated automatically without the necessity of active control or attention by the subject [31][32][33][34][35][36].…”

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confidence: 99%

How Behavioral Finance Patterns affect Investors’ Activity in Capital Markets?

Rothman¹

2017

J Bus Fin Aff

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interrelated through learning. Most of these nodes are normally passive and inactive and are termed long-term store when in the inactive state. The set of currently activated nodes is termed short-term store. Longterm store in thus a permanent, passive repository for information [1]. Short-term store is a temporary state; information in short-term store is said to be lost or forgotten when it reverts from an active to an inactive phase. Control of the information-processing system is carried out through a manipulation of the flow of information into and out of short-term store. These control processes include decisions of all sorts, rehearsal, coding, and search of short-and long-term store [17][18][19][20].Long-term store contains learned sequences of information processing that may be initiated by a control process or by environmental or internal information input but that are then executed automatically with few demands upon the capacity of short-term store [21][22][23][24][25][26][27][28][29][30]. This automatic process can be activated in response to a particular input configuration, where the inputs may be externally or internally generated and include the general situational context, or it will be activated automatically without the necessity of active control or attention by the subject [31][32][33][34][35][36]. For example, a red traffic light might initiate a braking response when the perceiver is in a car, and a walking, halting, or traffic-scanning response when the perceiver is a pedestrian. Since an automatic process operates through a relatively permanent set of associative connections in long-term store, any new automatic process requires an appreciable amount of consistent training to develop fully. Furthermore, once learned, an automatic process is difficult to suppress, to modify, or to ignore.Keywords: Behavioral finance; Inefficient market; Attention; Corporate news; Event study; Financial markets; Pharmaceutical companies; Probability weighting functions Introduction Psychology framework -Attention theoryThe concept of attention has its roots in the nineteenth century where the study of the attention effects was a favorite topic for introspection. Only by the end of the 1950s, the situation had altered radically, and the newly legitimized concept of attention was a central topic in an emergent cognitive psychology [1][2][3][4][5]. The concept, in general, defines an individual's notable ability to resist distraction as a manifestation of selective attention. Likewise, our research describes investors` attention-grabbing focus to market events as can be seen as selective attention.The main function of the term "attention" in post-behavioristic psychology is to provide a label for some of the internal mechanisms that determine the significance of stimuli and thereby make it impossible to predict behavior by stimulus considerations alone [6][7][8][9][10]. The main idea of attention within cognitive psychology is that the organism appears to control the choice of stimuli that will be allowed, i...

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Driven to Distraction: Extraneous Events and Underreaction to Earnings News

Cited by 226 publications

References 13 publications

Influences from the European Parliament on EU emissions prices

Influences from the European Parliament on EU emissions prices

eBay's Crowded Evenings: Competition Neglect in Market Entry Decisions

How Behavioral Finance Patterns affect Investors’ Activity in Capital Markets?

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