Beyond Market Mood: Firm Sentiment and the Response to Corporate Earnings Announcements
51 Pages Posted: 3 Mar 2017 Last revised: 25 Aug 2018
Date Written: June 6, 2018
Using a unique database this study establishes a relationship between firm-specific investor sentiment and stock price movements around earnings announcements. We find that firm-specific investor sentiment is a key determinant of price adjustment in the context of an earnings surprise. Unsurprisingly, the effect of firm-specific investor sentiment dominates the effect of market-wide sentiment. We also provide evidence that the effect of firm-specific investor sentiment is more pronounced for stocks that are hard to value and difficult to arbitrage and stock price reactions are most marked for stocks with negative earnings announcements. Further we find evidence of mispricing and return reversals over the days following an earnings surprise.
Keywords: Investor sentiment, Asset pricing, Social media, Twitter, Earnings surprises.
JEL Classification: G02, G11, G12, G14
Suggested Citation: Suggested Citation