Investor Inattention, Firm Reaction, and Friday Earnings Announcements

DellaVigna, Stefano; Pollet, Joshua Matthew

doi:10.2139/ssrn.843786

Cited by 36 publications

(34 citation statements)

References 41 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Earnings announcements seem to cluster by day of week and show a highly seasonal pattern. As documented by other studies, the number of announcements is higher on Tuesday, Wednesday, and Thursday, and lowest on Friday (e.g., Damodaran (1989), DellaVigna and Pollet (2006)); the average number of announcements on Friday is 68.8, which is less than a half of the average number of announcements on Thursday (152.2).…”

Section: Hypothesis 1csupporting

confidence: 63%

“…To calculate the daily number of quarterly earnings announcements, we look at quarterly earnings announcements available from CRSPCompustat merged database. When the announcement date is also available at IBES but is different from Compustat date, we take the earlier date following the imputation rule of DellaVigna and Pollet (2006).…”

Section: The Datamentioning

confidence: 99%

“…There has also been analysis of how firms can exploit limited investor attention by disclosing bad news at times when other firms are making salient disclosures (Hirshleifer, Lim, and Teoh (2004)), or on days of the week when investors are less attentive (DellaVigna and Pollet (2006)). …”

mentioning

confidence: 99%

“…In the models of DellaVigna and Pollet (2006) and Hirshleifer and Teoh (2005), investors are risk averse, and a subset neglect the information contained in a firm's latest earnings realization about future profitability. In equilibrium stock prices underreact to earnings surprises, so that prices are on average too low after favorable surprises and too high after unfavorable surprises.…”

mentioning

confidence: 99%

“…The post-earnings announcement drift anomaly (Bernard and Thomas (1989)) suggests that some investors at least temporarily neglect the information in earnings surprises about future profitability. Furthermore, there is evidence that market reactions to earnings announcements are more prompt and complete when there is reason to think investors are paying attention to earnings: during trading hours rather than non-trading hours (Francis, Pagach, and Stephan (1992), Bagnoli, Clement, and Watts (2005)), on non-Friday weekdays rather than on Fridays as the weekend approaches (DellaVigna and Pollet (2006)), and during up markets rather than down markets (Hou, Peng, and Xiong (2006)). …”

mentioning

confidence: 99%

See 4 more Smart Citations

Driven to Distraction: Extraneous Events and Underreaction to Earnings News

2007

View full text Add to dashboard Cite

Psychological evidence indicates that it is hard to process multiple stimuli and perform multiple tasks at the same time. This paper tests the investor distraction hypothesis, which holds that the arrival of extraneous news causes trading and market prices to react sluggishly to relevant news about a firm. Our test focuses on the competition for investor attention between a firm's earnings announcements and the earnings announcements of other firms. We find that the immediate stock price and volume reaction to a firm's earnings surprise is weaker, and post-earnings announcement drift is stronger, when a greater number of earnings announcements by other firms are made on the same day. Distracting news has a stronger effect on firms that receive positive than negative earnings surprises. Industry-unrelated news has a stronger distracting effect than related news. A trading strategy that exploits post-earnings announcement drift is unprofitable for announcements made on days with little competing news.[Attention] is the taking possession by the mind in clear and vivid form, of one out of what seem several simultaneously possible objects or trains of thought...It implies withdrawal from some things in order to deal effectively with others.William James, Principles of Psychology, 1890Almost a quarter of British motorists admit they have been so distracted by roadside billboards of semi-naked models that they have dangerously veered out of their lanes.

show abstract

Section: Hypothesis 1csupporting

confidence: 63%

Section: The Datamentioning

confidence: 99%

mentioning

confidence: 99%

mentioning

confidence: 99%

mentioning

confidence: 99%

See 3 more Smart Citations

Driven to Distraction: Extraneous Events and Underreaction to Earnings News

2007

View full text Add to dashboard Cite

show abstract

Complexity aversion when Seeking Alpha

Umar

2022

Journal of Accounting and Economics

View full text Add to dashboard Cite

I provide causal evidence that textual complexity a↵ects investor and market behavior, using two complementary settings. First, examining field data with randomization from Seeking Alpha, I find that a standard-deviation increase in headline length (negativity) leads to 12%-fewer (2%-more) views. The e↵ects are larger for less-sophisticated investors. Second, examining firm-earnings releases, I find a market e↵ect by instrumenting title length with company-name length. A standard deviation increase in length leads to 5%-lessannouncement turnover, 50-basis-points-tighter-intraday-price ranges, and 40-basis-pointsreturn underreactions, correcting within one month.

show abstract

Financial attention and the disposition effect

Dierick

Heyman

Inghelbrecht

et al. 2019

Journal of Economic Behavior & Organization

View full text Add to dashboard Cite

Using a novel brokerage dataset covering individual investors' login and stock trading behavior, we investigate the severity of the disposition effect as a function of attention. Our results show that more attentive investors trade less in line with the disposition effect, suggesting a comparative advantage in incorporating information into financial decision making. Furthermore, we find that high attention is related to a stronger tendency to sell moderate losses, as compared to large ones, while low attention increases an investor's likelihood to sell extreme, rather than moderate, profits. These results are in line with the theory of cognitive dissonance and saliency effects.

show abstract

Investor Inattention, Firm Reaction, and Friday Earnings Announcements

Abstract: 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.

Cited by 36 publications

References 41 publications

Driven to Distraction: Extraneous Events and Underreaction to Earnings News

Driven to Distraction: Extraneous Events and Underreaction to Earnings News

Complexity aversion when Seeking Alpha

Financial attention and the disposition effect

Contact Info

Product

Resources

About