Article2009

Investor Inattention and Friday Earnings Announcements

Stefano DellaVigna · Joshua Matthew Pollet

1,740 citations0/0 files storedThe Journal of Finance

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Financial Markets and Investment Strategies Financial Analysis and Corporate Governance Stock Market Forecasting Methods

Abstract

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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References

1993Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency 1990Noise Trader Risk in Financial Markets 1998Investor Psychology and Security Market Under‐ and Overreactions 2007All That Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors n.d.A model of investor sentiment /1999A Unified Theory of Underreaction, Momentum Trading, and Overreaction in Asset Markets 1998A model of investor sentiment1We are grateful to the NSF for financial support, and to Oliver Blanchard, Alon Brav, John Campbell (a referee), John Cochrane, Edward Glaeser, J.B. Heaton, Danny Kahneman, David Laibson, Owen Lamont, Drazen Prelec, Jay Ritter (a referee), Ken Singleton, Dick Thaler, an anonymous referee, and the editor, Bill Schwert, for comments.1 2001Capital markets research in accounting

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