 Attention-driven reaction to extreme earnings surprisesTomas Reyes, Julian A. Batista, Alvaro Chacon, Diego Martinez and Edgar Kausel The Quarterly Review of Economics and Finance, 2023, vol. 92, issue C, 230-248 Abstract: We investigate the relationship between investor attention and stock returns in the context of extreme earnings surprises. We propose a novel mechanism that describes this interaction: high attention to very positive and very negative earnings news results in faster incorporation of information into stock prices, an overreaction effect, and a subsequent partial reversal. We test this mechanism using post-announcement abnormal returns and measure investor attention using internet search volume. We confirm that abnormal attention to earnings announcements is positively related to post-announcement abnormal returns when earnings surprises are very positive and negatively related when earnings surprises are very negative. More importantly, we argue that investors exhibit attention-driven overreactions to these extreme earnings surprises since the initial effects of abnormal attention on abnormal returns are subsequently partially reversed. Keywords: Limited attention; Market-pricing anomaly; Stock prices explanation; Earnings announcements; Event study (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:92:y:2023:i:c:p:230-248 DOI: 10.1016/j.qref.2023.10.003 Access Statistics for this article The Quarterly Review of Economics and Finance is currently edited by R. J. Arnould and J. E. Finnerty More articles in The Quarterly Review of Economics and Finance from Elsevier |
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