Investor Inattention, Firm Reaction, and Friday Earnings Announcements

Stefano DellaVigna and Joshua Pollet

No 11683, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Do firms release news strategically in response to investor inattention? We consider news about earnings and analyze the response of returns to announcements on Friday and other weekdays. Friday announcements have less immediate and more delayed stock return response. The delayed response as a percentage of the total response is 60 percent on Friday and 40 percent on other weekdays. In addition, abnormal trading volume around announcement day is 10 percent lower for Friday announcements. These findings suggest that weekends distract investor attention temporarily. They support explanations of post-earning announcement drift based on underreaction to information caused by limited attention. We also document that firms release worse announcements on Friday. Friday announcements are associated with a 45 percent higher probability of a negative earnings surprise and a 50 basis points lower abnormal return. The firm-based evidence of strategic news release corroborates the investor-based evidence of inattention on Friday. The results for stock returns, volume, and strategic behavior support the hypothesis of limited attention.

JEL-codes: G1 G3 J0 (search for similar items in EconPapers)
Date: 2005-10
New Economics Papers: this item is included in nep-fin and nep-fmk
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Published as DellaVigna, Stefano and Joshua Pollet. “Investor Inattention and Friday Earnings Announcements.” Journal of Finance 64 (April 2009): 709-749.

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