Volume, Opinion Divergence and Returns: A Study of Post-Earnings Announcement Drift

Posted: 2 Nov 2005

See all articles by Jon A. Garfinkel

Jon A. Garfinkel

University of Iowa - Tippie College of Business

Jonathan S. Sokobin

FINRA

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Abstract

This paper examines the relationship between post-earnings announcement returns and different measures of volume at the earnings date. We find that post-event returns are strictly increasing in the component of volume that is unexplained by prior trading activity. We interpret unexplained volume as an indicator of opinion divergence among investors and conclude that post-event returns are increasing in ex-ante opinion divergence. Our evidence is consistent with Varian (1985) who suggests that opinion divergence may be treated as an additional risk factor affecting asset prices.

Note: Previously titled "Rational Markets, Earnings Transparency and Post - Earnings Announcement Drift" and "Rational Markets, Divergent Investor Opinions And Post-Earnings Announcement Drift"

Keywords: Drift, opinion divergence, volume

JEL Classification: G12, G14, M41

Suggested Citation

Garfinkel, Jon A. and Sokobin, Jonathan, Volume, Opinion Divergence and Returns: A Study of Post-Earnings Announcement Drift. Journal of Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=779204

Jon A. Garfinkel (Contact Author)

University of Iowa - Tippie College of Business ( email )

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Jonathan Sokobin

FINRA ( email )

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