Abstract

http://ssrn.com/abstract=1262757
 
 

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Investor Sentiment, Post-Earnings Announcement Drift, and Accruals


Joshua Livnat


New York University

Christine Petrovits


College of William and Mary - Mason School of Business

June 2009

AAA 2009 Financial Accounting and Reporting Section (FARS) Paper

Abstract:     
There is growing evidence in the finance literature that investor sentiment affects stock prices. We examine whether stock price reactions to earnings surprises and accruals vary systematically with the level of investor sentiment. Using quarterly drift tests and monthly trading strategy (calendar time) tests, we find evidence that holding extreme good news firms following pessimistic sentiment periods earns significantly higher abnormal returns than holding extreme good news firms following optimistic sentiment periods. Similarly, our results suggest that holding low accrual firms following pessimistic sentiment periods earns significantly higher abnormal returns than holding low accrual firms following optimistic sentiment periods. We also document that abnormal returns in the short-window around preliminary earnings announcements for extreme good news firms are significantly higher during periods of low sentiment than during periods of high sentiment. Overall, our results indicate that investor sentiment influences the source of excess returns from earnings-based trading strategies.

Number of Pages in PDF File: 40

Keywords: investor sentiment, post-earnings announcement drift, accruals, anomalies

JEL Classification: G14, M41, M43

working papers series


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Date posted: September 3, 2008 ; Last revised: June 24, 2009

Suggested Citation

Livnat, Joshua and Petrovits, Christine, Investor Sentiment, Post-Earnings Announcement Drift, and Accruals (June 2009). AAA 2009 Financial Accounting and Reporting Section (FARS) Paper. Available at SSRN: http://ssrn.com/abstract=1262757 or http://dx.doi.org/10.2139/ssrn.1262757

Contact Information

Joshua Livnat
New York University ( email )
44 West 4th Street, Suite 10-76
Stern School of Business
New York, NY 10012-1118
United States
212-998-0022 (Phone)
212-995-4004 (Fax)
Christine Petrovits (Contact Author)
College of William and Mary - Mason School of Business ( email )
P.O. Box 8795
Williamsburg, VA 23187-8795
United States
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