Retail Investors and the Adjustment of Stock Prices to Earnings Information
Daniel J. Taylor
University of Pennsylvania - The Wharton School
October 9, 2009
AFA 2010 Atlanta Meetings Paper
AAA 2010 Financial Accounting & Reporting Section (FARS) Paper
This study examines the effect of contrarian retail trades on the pricing of earnings information. Consistent with price pressure from contrarian retail trades delaying the adjustment of prices to earnings information, we find that the negative price drift accompanying bad news is largest when retail investors buy on bad news, and that the positive price drift accompanying good news is largest when retail investors sell on good news. These findings are consistent with the correlated trading of retail investors around earnings announcements causing a delayed price adjustment which manifests as drift.
Number of Pages in PDF File: 52
Keywords: retail investors, behavioral finance, underreaction, earnings announcements, post-earnings announcement drift, limits to arbitrage
JEL Classification: M43working papers series
Date posted: March 23, 2009 ; Last revised: June 18, 2011
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