Investor attention and stock market under-reaction to earnings announcements: Evidence from the options market

Xuewu Wesley Wang, Zhipeng Yan, Qunzi Zhang, Xuechen Gao

Research output: Contribution to journalArticlepeer-review

6 Scopus citations

Abstract

Using a broad sample of earnings announcements, we show that the initial stock market's response substantially increases and the post-earnings announcement drift becomes much weaker in the presence of more active pre-earnings option trading. We find that the strongest initial stock market's response originates from those announcements with higher pre-earnings option trading, fewer competing announcements, and made on non-Fridays. Our interpretation is that the heightened investor attention, as captured by higher pre-earnings option trading, fewer competing announcements, and non-Friday announcements, accelerates the stock market's response and mitigates the stock market under-reaction.

Original languageEnglish (US)
Pages (from-to)478-492
Number of pages15
JournalJournal of Futures Markets
Volume38
Issue number4
DOIs
StatePublished - Apr 2018

All Science Journal Classification (ASJC) codes

  • Accounting
  • Business, Management and Accounting(all)
  • Finance
  • Economics and Econometrics

Keywords

  • earnings announcements
  • investor attention
  • option trading
  • stock market under-reaction

Fingerprint

Dive into the research topics of 'Investor attention and stock market under-reaction to earnings announcements: Evidence from the options market'. Together they form a unique fingerprint.

Cite this