Earnings Announcements, Miller’s Stocks and Private Investors – Trading Patterns and Performance
63 Pages Posted: 15 Aug 2011 Last revised: 17 Mar 2012
Date Written: March 15, 2012
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: Suggested Citation