The effect of the summer doldrums on the market reaction to earnings announcements

Gregory Gaynor and Richard Morton

Advances in accounting, 2013, vol. 29, issue 2, 195-204

Abstract: Hong and Yu (2009) document a significant decrease in trading volume and returns during the summer months. Given the tendency of noise traders to buy shares following both positive and negative earnings surprises (Lee, 1992), we hypothesize that reduced trading activity by noise-traders results in less of an earnings announcement premium during the summer. Consistent with our hypothesis, we find lower abnormal returns surrounding summer earnings announcements compared to non-summer announcements. We also find lower abnormal returns in the ten days prior to the announcement, consistent with less front-running by sophisticated investors. Finally, we show that these summer effects are stronger in recent years characterized by more online trading and greater noise trader participation.

Keywords: Earnings announcements; Noise traders; Sophisticated investors; Online trading; Summer slowdown (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:eee:advacc:v:29:y:2013:i:2:p:195-204

DOI: 10.1016/j.adiac.2013.08.002

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