Do Individual Investors Drive Post-Earnings Announcement Drift? Direct Evidence from Personal Trades

David Hirshleifer, James N. Myers, Linda A. Myers and Siew Hong Teoh
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James N. Myers: University of Illinois at Urbana- Champaign
Linda A. Myers: University of Illinois at Urbana- Champaign - Department of Accountancy

Finance from University Library of Munich, Germany

Abstract: This study examines whether individual investors are the source of post- earnings announcement drift (PEAD). We provide evidence on how individual investors trade in response to extreme quarterly earnings surprises and on the relation between individual investors' trades and subsequent abnormal returns. We find no evidence that either individuals or any sub-category of individuals in our sample cause PEAD. Individuals are significant net buyers after both negative and positive earnings surprises. There is no indication that trading by any of our investor sub-categories explains the concentration of drift at subsequent earnings announcement dates. While post-announcement individual net buying is a significant negative predictor of stock returns over the next three quarters, individual investor trading fails to subsume any of the power of extreme earnings surprises to predict future abnormal returns.

Keywords: post earnings-announcement drift; trading activity; individual investors; market efficiency (search for similar items in EconPapers)
JEL-codes: G (search for similar items in EconPapers)
Pages: 40 pages
Date: 2004-12-04
New Economics Papers: this item is included in nep-fin and nep-fmk
Note: Type of Document - pdf; pages: 40. PDF
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Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpfi:0412003

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