Let Me Sleep on It: Sleep and Investor Reactions to Earnings Surprises
34 Pages Posted: 22 Mar 2021 Last revised: 23 Mar 2021
Date Written: March 12, 2021
We explore if sleep deprivation affects how investors react to relevant news. Using the transition to Daylight Saving Time (DST) in the spring as a disruption to sleeping patterns, we show that investors underreact to a firm’s earnings surprise in the days after the transition to DST. Further, an earnings surprise in the days after the transition to DST is associated with a positive drift in the post-announcement period. Our findings are consistent with sleep-deprived investors mispricing and subsequently reassessing relevant information. Overall, our results highlight the importance of investors' cognitive ability for efficient market pricing.
Keywords: sleep deprivation, market reactions, daylight saving time, earnings surprise
JEL Classification: G10, G14, G41
Suggested Citation: Suggested Citation