Let Me Sleep on It: Sleep and Investor Reactions to Earnings Surprises

34 Pages Posted: 22 Mar 2021 Last revised: 23 Mar 2021

See all articles by Jens Hagendorff

Jens Hagendorff

King's College London - King's Business School

Angelica Gonzalez

University of Edinburgh

Xuhao Li

University of Edinburgh Business School

Date Written: March 12, 2021

Abstract

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

Hagendorff, Jens and Gonzalez, Angelica and Li, Xuhao, Let Me Sleep on It: Sleep and Investor Reactions to Earnings Surprises (March 12, 2021). Available at SSRN: https://ssrn.com/abstract=3803494 or http://dx.doi.org/10.2139/ssrn.3803494

Jens Hagendorff (Contact Author)

King's College London - King's Business School

30 Aldwych
London, WC2B 4BG
United Kingdom

Angelica Gonzalez

University of Edinburgh ( email )

Old College
South Bridge
Edinburgh, Scotland EH8 9JY
United Kingdom

Xuhao Li

University of Edinburgh Business School ( email )

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