Earnings notifications, investor attention, and the earnings announcement premium

The Dog that Did Not Bark: Limited Price Efficiency and Strategic Nondisclosure

“…Our design is the same except that we do not limit our controls to risk factors. Our controls include the following variables: 1) R −5,0 : Abnormal return from five trading days before to the earnings announcement date of quarter q , controlling for the return premium prior to earnings announcements (e.g., Aboody, Lehavy, and Trueman [2010], Chapman [2018], Johnson and So [2018a]). 12 2) Ret vol iq : Change in the daily return volatility of quarter q + 1 to quarter q , which controls for changes in idiosyncratic risk during quarter q (Rogers, Skinner, and Van Buskirk [2009]) and changes in inventory risk (So and Wang [2014]).…”

“…A second concern is that return premium prior to earnings announcements drives our findings. A number of studies document return premium around earnings announcements; that is, stocks earn higher returns prior to earnings announcements (e.g., Aboody, Lehavy, and Trueman [2010], So and Wang [2014], Savor and Wilson [2016], Johnson and So [2018a], Chapman [2018]). This return premium could explain our results if it reverses in the postannouncement period.…”

“…Zhang's [2006] momentum strategy produces monthly abnormal stock returns of 63-263 basis points, which implies around 25-104 basis points returns in eight trading days, assuming 20 trading days per month. 4 Many studies document a positive return premium prior to the earnings announcement, known as the earnings announcement premium (see, e.g., Aboody, Lehavy, and Trueman [2010], So and Wang [2014], Chapman [2018]). that nonguidance is associated with larger negative abnormal stock returns around the subsequent earnings announcement as attention decreases.…”

“…For example,Aboody, Lehavy, and Trueman [2010, p. 318], using the 35 years beginning at 1971, document that the average postannouncement market-adjusted stock return (from day 1 to 5) is −10 basis points Chapman [2018],. using data between the fourth quarter of 1999 and the third quarter of 2002, finds a −14 basis-point average postannouncement market-adjusted stock return (from day 0 to day 5).…”

Why Do Individual Investors Disregard Accounting Information? The Roles of Information Awareness and Acquisition Costs

“…Protecting individual investors has long been an SEC priority and was reinforced by the Dodd-Frank Act in 2010. Former Chairperson Mary Jo [2016], Koester, Lundholm, and Soliman [2016], Lawrence et al [2016], deHaan, Madsen, andPiotroski [2017], Chapman [2018]), dissemination (e.g., Bushee et al [2010], Tetlock [2011], Blankespoor, Miller, and White [2014]), information overload (e.g., Dyer, Lang, and Stice-Lawrence [2017], Drake, Thornock, and Twedt [2017], Chapman et al [2018]), and recognition versus disclosure (e.g., Michels [2017]), but these studies typically do not specify which types of information costs drive their hypotheses. Differentiating between types of costs is important not only to improve understanding of market frictions but also because different costs likely affect market outcomes differently.…”