Impact of Investors' Trading Activity to Post-Earnings Announcement Drift

35 Pages Posted: 14 Apr 2005

See all articles by Markku J. Vieru

Markku J. Vieru

University of Lapland - Faculty of Social Sciences, Multidimensional Tourism Institute

Jukka Perttunen

University of Oulu - Department of Accounting & Finance

Hannu J. Schadewitz

Turku School of Economics at the University of Turku - Department of Accounting & Finance

Date Written: March 2005

Abstract

This study focuses on post-earnings-announcement drift in an emerging market and whether it is associated with the trading activity of non-institutional trading around interim earnings announcements. We separate the stock trading activity of Finnish households into five trading classes. Data is all trades executed on the Helsinki Stock Exchange during 1996-2000. Results show that when earnings news contains only moderate price effects no clear evidence is found to show that trading by any of the specified non-institutional trading activity classes is particularly associated with price changes. However, excess buying of passive and intermediate individual investors after extremely negative earnings news seems to intensify the negative post-earnings returns. Also for extremely positive earnings news trading by individuals seems to be related to the post-earnings returns. In that sense post-earnings returns are related with the trading of non-institutional activity classes. However, the net trading of non-institutional investors with different trading activities on the announcement day does not affect the correlation between earnings surprises and subsequent returns. This suggests that the net trading of non-institutional investors' trading activity on the announcement event does not predict subsequent returns. Thus this result is consistent with that of Hirshleifer, Myers, Myers and Teoh (2003).

Keywords: investor behaviour, event study, accounting disclosure, trading activity

JEL Classification: D82, G14, M41

Suggested Citation

Vieru, Markku and Perttunen, Jukka and Schadewitz, Hannu J., Impact of Investors' Trading Activity to Post-Earnings Announcement Drift (March 2005). Available at SSRN: https://ssrn.com/abstract=691163 or http://dx.doi.org/10.2139/ssrn.691163

Markku Vieru (Contact Author)

University of Lapland - Faculty of Social Sciences, Multidimensional Tourism Institute ( email )

P.O. Box 122
Rovaniemi FIN-96101
Finland
+358 400 377641 (Phone)
+358 16 341 2600 (Fax)

Jukka Perttunen

University of Oulu - Department of Accounting & Finance ( email )

P.O. Box 4600
Oulu FIN-90014
Finland

Hannu J. Schadewitz

Turku School of Economics at the University of Turku - Department of Accounting & Finance ( email )

Rehtorinpellonkatu 3
FIN-20500 Turku
Finland
+358 2 333 9321 (Phone)
+358 2 333 9350 (Fax)

HOME PAGE: http://www.utu.fi/en/people/hannu-schadewitz

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