The Journal of Finance · 2009 · 1.8K citations · 30 references
BusinessEconomicsFinanceBehavioral FinanceFinancial EconomicsFinancial MarketsCapital MarketsCognitive Biases In InvestingEarnings AnnouncementsInvestmentInvestor PsychologyStock MarketsAttentionDelay EffectsInvestor Trading BehaviorInvestors’ Limited AttentionMarket Reaction To InformationStock Market ReturnsTrading Volume Reaction
The study investigates whether limited investor attention on Fridays reduces the immediate stock price reaction to earnings announcements and increases delayed drift. The authors compare earnings‑announcement responses on Fridays to those on other weekdays to isolate the effect of inattention. Friday announcements show a 15 % smaller immediate response, a 70 % larger delayed drift, 8 % lower trading volume, and a portfolio exploiting this drift earns substantial abnormal returns, supporting an underreaction explanation for post‑earnings drift.
ABSTRACT Does limited attention among investors affect stock returns? We compare the response to earnings announcements on Friday, when investor inattention is more likely, to the response on other weekdays. If inattention influences stock prices, we should observe less immediate response and more drift for Friday announcements. Indeed, Friday announcements have a 15% lower immediate response and a 70% higher delayed response. A portfolio investing in differential Friday drift earns substantial abnormal returns. In addition, trading volume is 8% lower around Friday announcements. These findings support explanations of post‐earnings announcement drift based on underreaction to information caused by limited attention.
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