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

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.