This paper presents empirical evidence supporting the hypothesis that individual investors’ news-contrarian trading behavior drives post-earnings-announcement drift (PEAD). We find that after the announcement, individuals tend to trade in the opposite direction to earnings surprise, which impedes a full price response to earnings news, leading to under-reaction and PEAD. Moreover, we find that PEAD exists only for those stocks that individuals trade in the opposite direction to earnings news, and that the magnitudes of PEAD are greater for those stocks that are more intensely sold (for positive earnings surprise) and bought (for negative earnings surprise) by individuals.
Bibliographical noteFunding Information:
We thank seminar participants at Korea University, Seoul National University, Yonsei University, and the WFC, FMA, FMA Asia, and KAEA meetings for helpful comments and discussions on earlier versions of this paper. We are also grateful to an anonymous referee for many insightful comments and detailed suggestions. Hahn gratefully acknowledge faculty research support from School of Business at Yonsei University. Eom gratefully acknowledges research support from Hansung University.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics