Keeping Your Cool: An Attention Driven Buying Pressure After Earnings News
63 Pages Posted: 16 Sep 2020 Last revised: 19 Jul 2021
Date Written: July 10, 2020
This paper uses a novel and direct retail investor attention proxy to show that retail investor attention is important for information efficiency around earnings announcements. The main finding is the presence of asymmetric patterns in subsequent market responses to earnings surprises when retail investors are the most attentive. If earnings news is bad, a distinct drift is present. The drift is consistent with an attention-induced buying pressure, as attention predicts subsequent attention, abnormal trading, and long-run underperformance. If the news is good, then even though the announcement must also have been attention-grabbing, no drift is observed. The effects are intensified for stocks with higher limits to arbitrage and when institutional investors are the least attentive.
Keywords: Investor Attention, Retail Investors, Earnings Announcements, Information Diffusion, Buying Pressure
JEL Classification: G10, G12, G14, G40
Suggested Citation: Suggested Citation