Retail Investors and the Adjustment of Stock Prices to Earnings Information

Taylor, Daniel J.

doi:10.2139/ssrn.1364730

Abstract

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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

Abstract:
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: M43

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Date posted: March 23, 2009 ; Last revised: June 18, 2011

Suggested Citation

Taylor, Daniel J., Retail Investors and the Adjustment of Stock Prices to Earnings Information (October 9, 2009). AFA 2010 Atlanta Meetings Paper; AAA 2010 Financial Accounting & Reporting Section (FARS) Paper. Available at SSRN: http://ssrn.com/abstract=1364730 or http://dx.doi.org/10.2139/ssrn.1364730

Contact Information

Daniel Taylor (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States