Do Individual Investors Cause Post-Earnings Announcement Drift? Direct Evidence from Personal Trades
Posted: 4 Jun 2008 Last revised: 19 Oct 2008
This study tests whether na¿ve trading by individual investors, or some class of individual investors, causes post-earnings announcement drift (PEAD). Inconsistent with the individual trading hypothesis, individual investor trading fails to subsume any of the power of extreme earnings surprises to predict future abnormal returns. Moreover, individuals are significant net buyers after both negative and positive extreme earnings surprises, consistent with an attention effect, but not with their trades causing PEAD. Finally, we find no indication that trading by individuals explains the concentration of drift at subsequent earnings announcement dates.
Keywords: earnings anomalies, post-earnings announcement drift, market efficiency, trading activity, individual investors, investor sophistication
JEL Classification: G14, M41
Suggested Citation: Suggested Citation