Consecutive Earnings Surprises: Small and Large Trader Reactions

41 Pages Posted: 14 May 2012

See all articles by Devin M. Shanthikumar

Devin M. Shanthikumar

University of California, Irvine - Paul Merage School of Business

Date Written: December 22, 2011

Abstract

Prior research demonstrates that investors respond differently to earnings surprises that are part of a string of consecutive earnings increases or surprises than to those that are not. To shed light on who values these patterns, I compare trading responses of small and large traders to earnings surprises that occur during a series of positive or negative surprises. I find that the relative intensity of small traders’ trading (and to a lesser extent medium traders) to earnings surprises generally increases as a series progresses. Small traders respond more negatively to the second (third) negative surprise in a series than to the first (second), and more positively for the first three surprises in a positive series. Moreover, I find that announcement period returns are related to the trading of small and medium traders. These results suggest that less sophisticated smaller traders, responding to earnings series, contribute to previously documented pricing patterns.

Keywords: earnings string, earnings pattern, earnings momentum, trade imbalance, small and large trade

JEL Classification: M41, M40, G14, G10

Suggested Citation

Shanthikumar, Devin M., Consecutive Earnings Surprises: Small and Large Trader Reactions (December 22, 2011). Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2055541

Devin M. Shanthikumar (Contact Author)

University of California, Irvine - Paul Merage School of Business ( email )

Paul Merage School of Business
SB 440
Irvine, CA 92697-3125
United States

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