Individual Investor Trading and Return Patterns Around Earnings Announcements

53 Pages Posted: 23 Jan 2009 Last revised: 2 Jan 2011

See all articles by Ron Kaniel

Ron Kaniel

University of Rochester - Simon Business School; CEPR

Shuming Liu

San Francisco State University

Gideon Saar

Cornell University - Samuel Curtis Johnson Graduate School of Management

Sheridan Titman

University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: October 5, 2010

Abstract

This paper documents evidence consistent with informed trading by individual investors around earnings announcements using a unique dataset of NYSE stocks. We show that intense aggregate individual investor buying (selling) predicts large positive (negative) abnormal returns on and after earnings announcement dates. We decompose the abnormal returns into a component that is attributed to risk-averse liquidity provision and a component that is attributed to private information or skill, and show that about half of the abnormal returns in the three months following the event can be attributed to private information. We also examine the behavior of individuals after the earnings announcement and find that they trade in the opposite direction to both pre-event returns (i.e., exhibit “contrarian” behavior) and the earnings surprise (i.e., exhibit “news-contrarian” behavior). The latter behavior, which could be consistent with profit-taking, has the potential to slow down the adjustment of prices to earnings news and contribute to the post-earnings announcement drift.

Suggested Citation

Kaniel, Ron and Liu, Shuming and Saar, Gideon and Titman, Sheridan, Individual Investor Trading and Return Patterns Around Earnings Announcements (October 5, 2010). EFA 2009 Bergen Meetings Paper; Johnson School Research Paper No. 07-09. Available at SSRN: https://ssrn.com/abstract=1332041 or http://dx.doi.org/10.2139/ssrn.1332041

Ron Kaniel

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

HOME PAGE: http://rkaniel.simon.rochester.edu

CEPR ( email )

London
United Kingdom

Shuming Liu

San Francisco State University ( email )

1600 Holloway Avenue
San Francisco, CA 94132
United States

Gideon Saar (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

431 Sage Hall
Ithaca, NY 14853
United States
607-255-7484 (Phone)
607-255-5993 (Fax)

HOME PAGE: https://www.johnson.cornell.edu/Faculty-And-Research/Profile?id=gs25

Sheridan Titman

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-232-2787 (Phone)
512-471-5073 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
358
Abstract Views
1,801
rank
18,512
PlumX Metrics