Volume, Opinion Divergence and Returns: A Study of Post-Earnings Announcement Drift

40 Pages Posted: 20 Nov 2003

See all articles by Jon A. Garfinkel

Jon A. Garfinkel

University of Iowa - Tippie College of Business

Jonathan S. Sokobin

FINRA

Multiple version iconThere are 2 versions of this paper

Date Written: November 2003

Abstract

This paper examines the relationship between post-earnings announcement returns and different measures of volume at the earnings date. We find that post-event returns are strictly increasing in the component of volume that is unexplained by prior trading activity. We interpret unexplained volume as an indicator of opinion divergence among investors and conclude that post-event returns are increasing in ex-ante opinion divergence. Our evidence is consistent with Varian (1985) who suggests that opinion divergence may be treated as an additional risk factor affecting asset prices.

Note: This is a revision of "Rational Markets, Earnings Transparency and Post - Earnings Announcement Drift" and "Rational Markets, Divergent Investor Opinions And Post-Earnings Announcement Drift"

Keywords: Drift,opinion divergence

JEL Classification: G12, G14, M41

Suggested Citation

Garfinkel, Jon A. and Sokobin, Jonathan, Volume, Opinion Divergence and Returns: A Study of Post-Earnings Announcement Drift (November 2003). AFA 2004 San Diego Meetings. Available at SSRN: https://ssrn.com/abstract=280913 or http://dx.doi.org/10.2139/ssrn.280913

Jon A. Garfinkel (Contact Author)

University of Iowa - Tippie College of Business ( email )

108 PBB
Iowa City, IA 52242-1000
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319-335-0943 (Phone)
319-335-3690 (Fax)

HOME PAGE: http://www.biz.uiowa.edu/faculty/jgarfinkel

Jonathan Sokobin

FINRA ( email )

1735 K Street NW
Washington, DC 20006-1506
United States
(202) 728-8248 (Phone)
(301) 527-4809 (Fax)

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