49 Pages Posted: 21 Mar 2008
Date Written: January 18, 2008
I examine the role of information processing costs on post earnings announcement drift. I distinguish between hard information - quantitative information that is more easily processed - and soft information which has higher processing costs. I find that qualitative earnings information has additional predictability for asset prices beyond the predictability in quantitative information. I also find that qualitative information has greater predictability for returns at longer horizons, suggesting that frictions in information processing generate price drift. Using a tool from natural language processing called typed dependency parsing, I demonstrate that qualitative information relating to positive fundamentals and future performance is the most difficult information to process.
Keywords: role of media in finance
Suggested Citation: Suggested Citation
Engelberg, Joseph, Costly Information Processing: Evidence from Earnings Announcements (January 18, 2008). AFA 2009 San Francisco Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1107998 or http://dx.doi.org/10.2139/ssrn.1107998