Cryptocurrency Disruption and Investor Reaction to Earnings Announcements

46 Pages Posted: 13 Jun 2022 Last revised: 29 Sep 2022

See all articles by Minjae Kim

Minjae Kim

University of Alberta - School of Business

Eva Liang

University of Minnesota - Twin Cities - Carlson School of Management

Ashish Ochani

SUNY at Binghamton - School of Management; Cornell University, Samuel Curtis Johnson Graduate School of Management, Department of Accounting

Xinyuan Shao

University of Minnesota - Twin Cities - Carlson School of Management

Date Written: September 28, 2022

Abstract

In this paper, we study the relationship between the cryptocurrency market and investor reactions to earnings news. Building on the limited investor attention literature, we hypothesize that the cryptocurrency market distracts investors from earnings news. We measure the cryptocurrency distraction as the magnitude of two-week cumulative cryptocurrency returns before earnings announcements, and find that the cryptocurrency distraction is associated with a weaker price reaction to earnings surprises. Our result is robust when using the Chinese bans on cryptocurrency offerings and exchanges as sources of exogenous variation in cryptocurrency distraction. Consistent with the limited attention hypothesis, we document that busy earnings announcement days experience greater cryptocurrency distraction. To corroborate the main finding, we further show that the Google search volume and abnormal trading volume around earnings announcements are lower when there is a greater amount of cryptocurrency distraction. Cryptocurrency distraction effect is concentrated in retail trading rather than institutional trading, and consistently, is associated with more severe information asymmetry. Overall, our study provides evidence that cryptocurrency, a class of asset with no intrinsic value, disrupts information processing and thus price formation in the equity market.

Keywords: Cryptocurrency; Limited attention; Earnings announcements; Price efficiency

JEL Classification: G12, G14, M41

Suggested Citation

Kim, Minjae and Liang, Eva (Hui) and Ochani, Ashish and Shao, Xinyuan, Cryptocurrency Disruption and Investor Reaction to Earnings Announcements (September 28, 2022). Available at SSRN: https://ssrn.com/abstract=4128064 or http://dx.doi.org/10.2139/ssrn.4128064

Minjae Kim

University of Alberta - School of Business ( email )

3-23 Business Building
Edmonton, Alberta T6G 2C7
Canada

Eva (Hui) Liang (Contact Author)

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

Ashish Ochani

SUNY at Binghamton - School of Management ( email )

Binghamton, NY
United States

HOME PAGE: http://www.ochaniashish.com

Cornell University, Samuel Curtis Johnson Graduate School of Management, Department of Accounting ( email )

Ithaca, NY
United States

HOME PAGE: http://www.ochaniashish.com

Xinyuan Shao

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

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