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Costly Information Processing: Evidence from Earnings Announcements

49 Pages Posted: 21 Mar 2008  

Joseph Engelberg

University of California, San Diego (UCSD) - Rady School of Management

Date Written: January 18, 2008

Abstract

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

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

Joseph Engelberg (Contact Author)

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

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