Individual investors and corporate earnings
- This dissertation comprises two papers on the trading of individual investors around earnings announcements: 1. This study examines the effect of earnings announcements on individual investors' trading decisions and their trading profits. Consistent with earnings news informing the trading decisions of individual investors, I find that earnings announcements are associated with significant increases in individual investor market participation, and that these increases persist even after controlling for the information in prices. Moreover, and in contrast to the conventional wisdom that disclosure benefits unsophisticated investors at the expense of more sophisticated investors, I find that individuals' trades around earnings announcements earn economically and statistically significant losses, and that these losses are significantly greater than the losses of non-announcement trades. Consistent with these losses resulting from inefficient information processing, I find the higher the information content of the earnings announcement the greater the loss, and that increased losses around earnings announcements are concentrated among those individual investors who are not classified as affluent or active traders. Given the limited information processing ability of individual investors, the results suggest a more nuanced view of the welfare effects of disclosure. 2. This study examines the effect of contrarian retail trades on the pricing of earnings information. Consistent with price pressure from contrarian retail trades delaying the adjustment of prices to earnings information, I find that the negative price drift accompanying bad news is largest when retail investors buy on bad news, and that the positive price drift accompanying good news is largest when retail investors sell on good news. These findings are consistent with the correlated trading of retail investors around earnings announcements causing a delayed price adjustment which manifests as drift.
|Type of resource
|electronic; electronic resource; remote
|1 online resource.
|2010, c2011; 2010
|Stanford University, School of Business Administration.
|Larcker, David F
|Larcker, David F
|Statement of responsibility
|Daniel Jeffrey Taylor.
|Submitted to the School of Business Administration.
|Thesis (Ph.D.)--Stanford University, 2011.
- © 2011 by Daniel Taylor
- This work is licensed under a Creative Commons Attribution Non Commercial 3.0 Unported license (CC BY-NC).
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