Investor attention and stock market under‐reaction to earnings announcements: Evidence from the options market

Xuewu Wesley Wang, Zhipeng Yan, Qunzi Zhang and Xuechen Gao

Journal of Futures Markets, 2018, vol. 38, issue 4, 478-492

Abstract: Using a broad sample of earnings announcements, we show that the initial stock market's response substantially increases and the post‐earnings announcement drift becomes much weaker in the presence of more active pre‐earnings option trading. We find that the strongest initial stock market's response originates from those announcements with higher pre‐earnings option trading, fewer competing announcements, and made on non‐Fridays. Our interpretation is that the heightened investor attention, as captured by higher pre‐earnings option trading, fewer competing announcements, and non‐Friday announcements, accelerates the stock market's response and mitigates the stock market under‐reaction.

Date: 2018
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