Stockholders’ Unrealized Returns and the Market Reaction to Financial Disclosures
Year: 2018
Type: article
Abstract: ABSTRACT Using both investor‐ and stock‐level data, I examine the relation between stockholders’ unrealized returns since purchase and the market response to earnings announcements. I demonstrate that stockholders’ unrealized gain/loss position moderates their trading behavior in response to earnings announcements. I also find that this behavior generates a short‐window return underreaction to earnings news. My results are generally consistent with predictions from prospect theory regarding the manner in which stockholders’ unrealized returns moderate their trading response to belief shocks. However, my results also suggest that an emotional component (i.e., regret‐avoidance/pride‐seeking) is necessary to explain the observed investor behavior.
Source: The Journal of Finance
DOI: 10.1111/jofi.12743
Author: ERIC WEISBROD
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2940153947