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.
All Science Journal Classification (ASJC) codes
- Business, Management and Accounting(all)
- Economics and Econometrics
- earnings announcements
- investor attention
- option trading
- stock market under-reaction