Let me sleep on it: sleep and investor reactions to earnings surprises

Angelica Gonzalez and Xuhao Li

The European Journal of Finance, 2024, vol. 30, issue 12, 1327-1344

Abstract: We explore if sleep deprivation affects how investors react to relevant news. Using the transition to Daylight Saving Time (DST) in spring as a disruption to sleeping patterns, we show that investors underreact to a firm’s earnings surprise in the days after the transition to DST. Further, an earnings surprise in the days after the transition to DST is associated with a positive drift in the post-announcement period. Our findings are consistent with sleep-deprived investors mispricing and subsequently revisiting relevant information. Overall, our results highlight the importance of investors’ cognitive ability for efficient market pricing.

Date: 2024
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DOI: 10.1080/1351847X.2023.2287065

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