Investor Inattention, Firm Reaction, and Friday Earnings Announcements

46 Pages Posted: 13 Nov 2005

See all articles by Stefano DellaVigna

Stefano DellaVigna

University of California, Berkeley; National Bureau of Economic Research (NBER)

Joshua Matthew Pollet

University of Illinois at Urbana-Champaign - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: September 24, 2005

Abstract

Do firms release news in response to investor inattention? We consider news about earnings and analyze the response of returns to announcements on Friday and other weekdays. Friday announcements have less immediate and more delayed response. The delayed response as a percentage of the total response is 60 percent on Friday and 40 percent on other weekdays. In addition, trading volume around announcement day increases 10 percent less for Friday announcements. These findings suggest that weekends distract investor attention temporarily. They support explanations of post-earning announcement drift based on underreaction to information caused by limited attention. We also document that firms release worse announcements on Friday. Friday announcements are associated with a 45 percent higher probability of a negative earnings surprise and a 50 basis points lower abnormal return. The firm-based evidence of strategic news release supports the investor-based finding of inattention on Friday. The results for stock returns, volume, and strategic behavior support the hypothesis of limited attention.

Keywords: earnings announcements, attention, Friday, strategic behavior

Suggested Citation

DellaVigna, Stefano and Pollet, Joshua Matthew, Investor Inattention, Firm Reaction, and Friday Earnings Announcements (September 24, 2005). Available at SSRN: https://ssrn.com/abstract=843786 or http://dx.doi.org/10.2139/ssrn.843786

Stefano DellaVigna

University of California, Berkeley ( email )

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Joshua Matthew Pollet (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

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