Why Do Individual Investors Disregard Accounting Information? The Roles of Information Awareness and Acquisition Costs

70 Pages Posted: 25 Oct 2017 Last revised: 14 Jan 2019

See all articles by Elizabeth Blankespoor

Elizabeth Blankespoor

University of Washington - Michael G. Foster School of Business

Ed deHaan

University of Washington - Michael G. Foster School of Business

John Wertz

University of Washington - Michael G. Foster School of Business

Christina Zhu

University of Pennsylvania - The Wharton School

Multiple version iconThere are 2 versions of this paper

Date Written: September 20, 2018

Abstract

Individual investors often neglect value-relevant accounting information and instead underperform by trading on technical trends. We investigate the frictions that impede individual investors’ use of accounting information, and in particular their costs of monitoring and acquiring accounting disclosures. We do so using an archival setting where individuals are presented with automated media articles that report both current earnings news and past stock returns. Although these investors have earnings information readily available, we find no evidence that their trades incorporate earnings news. Instead we find that they trade in response to the trailing stock returns presented in the articles. Our study raises questions about the likely efficacy of regulations that aim to aid less sophisticated investors by increasing their awareness of, and access to, accounting information.

Keywords: information costs, trading volume, media, earnings announcements, automation, technical trading

JEL Classification: M41, D83, G12, G14

Suggested Citation

Blankespoor, Elizabeth and deHaan, Ed and Wertz, John and Zhu, Christina, Why Do Individual Investors Disregard Accounting Information? The Roles of Information Awareness and Acquisition Costs (September 20, 2018). Journal of Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3059073 or http://dx.doi.org/10.2139/ssrn.3059073

Elizabeth Blankespoor

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Ed DeHaan

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

John Wertz

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Christina Zhu (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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