Work

Limited attention and the earnings announcement returns of past stock market winners

Year: 2009

Type: article

Abstract: We document that stocks with the strongest prior 12-month returns experience a significant average market-adjusted return of 1.58% during the five trading days before their earnings announcements and a significant average market-adjusted return of −1.86% in the five trading days afterward. These returns remain significant even after accounting for transactions costs. We empirically test a limited attention explanation for these anomalous returns—that stocks with sharp run-ups tend to attract individual investors’ attention and investment dollars, particularly before their earnings announcements. Our analysis suggests that the trading decisions of individual investors are at least partly responsible for the return pattern that we observe.

Source: Review of Accounting Studies

DOI: 10.1007/s11142-009-9104-9

Authors: David Aboody, Reuven Lehavy, Brett Trueman

Institutions: University of California, Los Angeles, University of Michigan

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,190

Funders: University of Pennsylvania, Pennsylvania State University, Hebrew University of Jerusalem, University of California, Irvine