Trading Volume and Different Aspects of Disagreement Coincident with Earnings Announcements
Linda Smith Bamber
University of Georgia - J.M. Tull School of Accounting
Orie E. Barron
Pennsylvania State University
Thomas L. Stober
University of Notre Dame - Department of Accountancy
This paper investigates the association between disagreement coincident with earnings announcements and investors' trading decisions. Theory suggests that trading volume arises because of investor disagreement, but disagreement is a multi-faceted construct. We find that three distinctlydifferent aspects of disagreement each play an incremental role in explaining trading volume around earnings announcements, even after controlling for the magnitude of the contemporaneous price change. These aspects of disagreement are: dispersion in prior beliefs, divergence in beliefs, and belief jumbling. Dispersion in prior beliefs is the cross-sectional variation in expectations before the earnings announcement, divergence in beliefs is the change in the dispersion in beliefs, and belief jumbling occurs when investors' beliefs change positions relative to each other. Our results indicate that each of these three aspects of disagreement coincident with earnings announcements affects investors' real economic (i.e., trading) decisions.
JEL Classification: D82, G10, G14, M41working papers series
Date posted: February 10, 1997
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo1 in 0.672 seconds