December Doldrums, Investor Distraction, and the Stock Market Reaction to Unscheduled News Events

55 Pages Posted: 20 Sep 2017 Last revised: 15 Jun 2021

See all articles by Sudheer Chava

Sudheer Chava

Georgia Institute of Technology - Scheller College of Business

Nikhil Paradkar

University of Georgia

Date Written: August 31, 2016

Abstract

We examine how investor distraction during the December holiday season impacts the stock market’s reaction to salient firm-specific news and whether this response is different for scheduled versus unscheduled news releases. We find that the price and volume response towards unscheduled news, such as credit rating downgrades and 8-K filings, is significantly weaker in December compared to other months. In contrast, after addressing selection issues, we find no equivalent effect for pre-scheduled earnings news released in December. Consistently, we also find that both retail and institutional investor attention to unscheduled firm-specific news is lower in December, but not so for scheduled news. Moreover, larger firms, firms with higher analyst following, or higher institutional ownership, are less susceptible to this December distraction effect towards unscheduled news. Our results highlight how investor distraction during the December holiday season can lead to a muted market reaction to unscheduled, but salient, firm-specific news.

Keywords: Investor inattention, unscheduled events, credit ratings, 8-K filings

JEL Classification: G02, G12, G14, G24

Suggested Citation

Chava, Sudheer and Paradkar, Nikhil, December Doldrums, Investor Distraction, and the Stock Market Reaction to Unscheduled News Events (August 31, 2016). Georgia Tech Scheller College of Business Research Paper No. 17-25, 30th Australasian Finance and Banking Conference 2017, Available at SSRN: https://ssrn.com/abstract=2962476 or http://dx.doi.org/10.2139/ssrn.2962476

Sudheer Chava

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

HOME PAGE: http://https://fintech.gatech.edu

Nikhil Paradkar (Contact Author)

University of Georgia ( email )

Athens, GA 30602-6254
United States

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