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

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