The Market Sentiment Trend, Investor Inertia, and Post-Earnings Announcement Drift: Evidence from Korea’s Stock Market

Heejeong Shin, Hyejeong Shin and Su-In Kim
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Heejeong Shin: School of Business, Ewha Womans University, 52 Ewhayeodae-gil, Seodaemun-gu, Seoul 3760, Korea
Hyejeong Shin: Department of Business Admnistration, Kyonggi University, 154-42 Gwanggyosan-ro, Yeongtong-gu, Suwon-si, Gyeonggi-do 16227, Korea
Su-In Kim: College of Business Management, Hongik University, 2639, Sejong-ro, Jochiwon-eup, Sejong-si 30016, Korea

Sustainability, 2019, vol. 11, issue 18, 1-19

Abstract: We investigated whether post-earnings announcement drift (PEAD) in the Korean stock market is related to investor inertial behavior under a directional trend in market sentiment. Given that investors tend to procrastinate due to their belief in the persistence of the current market’s condition and thus underreact to earnings information, we examined whether this investor inertia influences the drift in stock price following an earnings announcement. Our findings show that when the market sentiment continues to shift upwardly (downwardly) over the pre- and post-earnings announcement period, positive (negative) drift occurs. Note that these results are robust to control for the effect of market sentiment at a specific point in time. We suggest that investors do not fully respond to new earnings information due to investor inertial behavior under the market sentiment with a consistent trend. Overall, our study sheds light on a determinant of PEAD as one of the market anomalies in terms of investors’ cognitive bias by documenting the relation between PEAD and investor inertia.

Keywords: market sentiment; investor inertia; post-earnings announcement drift; trend of market sentiment; cognitive bias (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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