Earnings Announcements, Miller’s Stocks and Private Investors – Trading Patterns and Performance

63 Pages Posted: 15 Aug 2011 Last revised: 17 Mar 2012

See all articles by Thomas Etheber

Thomas Etheber

Goethe University Frankfurt - Department of Finance

Dominik Hennen

Goethe University Frankfurt - Department of Finance

Steffen Meyer

University of Southern Denmark - Department of Business and Economics; Danish Finance Institute

Tilman Rochow

Goethe University Frankfurt - Department of Finance

Date Written: March 15, 2012

Abstract

This paper investigates market-level and private investor trading patterns and performance around earnings announcements. We document clear evidence for abnormal trading around earnings announcements for both the entire market and households in Germany and observe that private investor transactions underperform relative to non-announcement trades. On the market level, we identify a price run-up prior to earnings announcements followed by a stronger cumulative price correction after the information release. The trend in return patterns is especially pronounced for stocks with high dispersion of opinion and short-sale constraints (Miller’s stocks). Relative to the market level, abnormal private investor trading is even higher around earnings announcements. Private investors’ underperformance on announcement trades compared to non-announcement transactions is partly driven by the inferior trading performance of inexperienced and unsophisticated investors. In particular when trading in stocks with high dispersion of opinion and short-sale constraints they generate strongly negative returns, implying that these types of investors are most negatively affected by the market anomalies that we document around earnings announcements.

Keywords: Private investors, earnings announcements, Miller’s stocks

JEL Classification: D14, D82, G11, G12, G14

Suggested Citation

Etheber, Thomas and Hennen, Dominik and Meyer, Steffen and Rochow, Tilman, Earnings Announcements, Miller’s Stocks and Private Investors – Trading Patterns and Performance (March 15, 2012). Available at SSRN: https://ssrn.com/abstract=1908975 or http://dx.doi.org/10.2139/ssrn.1908975

Thomas Etheber (Contact Author)

Goethe University Frankfurt - Department of Finance ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Dominik Hennen

Goethe University Frankfurt - Department of Finance ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Steffen Meyer

University of Southern Denmark - Department of Business and Economics ( email )

DK-5230 Odense
Denmark

Danish Finance Institute ( email )

Tilman Rochow

Goethe University Frankfurt - Department of Finance ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

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