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 language | English (US) |
|---|---|
| Pages (from-to) | 478-492 |
| Number of pages | 15 |
| Journal | Journal of Futures Markets |
| Volume | 38 |
| Issue number | 4 |
| DOIs | |
| State | Published - Apr 2018 |
All Science Journal Classification (ASJC) codes
- Accounting
- General Business, Management and Accounting
- Finance
- Economics and Econometrics
Keywords
- earnings announcements
- investor attention
- option trading
- stock market under-reaction