Investor attention and stock market under-reaction to earnings announcements: Evidence from the options market

Document Type

Article

Publication Date

4-1-2018

Abstract

Using a broad sample of earnings announcements, we show that the initial stock market's response substantially increases and the post-earnings announcement drift becomes much weaker in the presence of more active pre-earnings option trading. We find that the strongest initial stock market's response originates from those announcements with higher pre-earnings option trading, fewer competing announcements, and made on non-Fridays. Our interpretation is that the heightened investor attention, as captured by higher pre-earnings option trading, fewer competing announcements, and non-Friday announcements, accelerates the stock market's response and mitigates the stock market under-reaction.

Identifier

85035120718 (Scopus)

Publication Title

Journal of Futures Markets

External Full Text Location

https://doi.org/10.1002/fut.21890

e-ISSN

10969934

ISSN

02707314

First Page

478

Last Page

492

Issue

4

Volume

38

Grant

SEM 2015-311

Fund Ref

Bucknell University

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