Investor Attention and the Pricing of Earnings News
Handbook of Sentiment Analysis in Finance, Forthcoming
40 Pages Posted: 17 Jul 2014 Last revised: 4 Oct 2016
Date Written: July 16, 2014
We investigate whether investor attention is associated with the pricing (and mispricing) of earnings news where investor attention is measured using social media activity. We find that high levels of investor attention are associated with greater sensitivity of earnings announcement returns to earnings surprises, with the effect being strongest for firms that beat analysts’ forecasts. This appears to be appropriate pricing, on average, as only firms with low levels of attention are associated with significant post-earnings-announcement drift. Our results are distinct from other information sources including traditional media outlets, financial blogs, and internet search engine activity. Our results are consistent with investor attention observed in social media activity having distinct effects on the pricing and mispricing of earnings news.
Keywords: Investor Attention, Investor Sentiment, Social Media, Earnings Announcements, Capital Markets.
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