IDEAS home Printed from https://ideas.repec.org/a/eee/finana/v91y2024ics1057521923005513.html
   My bibliography  Save this article

Investors' opinion disagreement and abnormal trading around pre-earnings announcements

Author

Listed:
  • Li, Xing
  • Hou, Keqiang

Abstract

We use textual analysis techniques to construct a direct measure of investor disagreement to explain the abnormal stock volume and return around earnings expectation announcement in China. We crawl scrape the most a popular Chinese stock forum for individuals' posts about their opinion on a stocks, and classify the posts with machine learning methods. We find that our measure is most correlated with return volatility and historical turnover. We then conduct an event study for abnormal stock volume around pre-earnings announcements, examining the cumulative abnormal turnover for sample groups with prior agreement or disagreement, and with a convergence or divergence of opinion. We find that given prior disagreement of opinion, both convergence and divergence of opinion causing more trading volume in the Chinese market. We also observe the sample group with a divergence of opinion has more cumulative abnormal return than the convergence group. However, this effect is found to be more profound in stocks with higher institutional ownership, which is believed to be correlated with a low short-sale constraint.

Suggested Citation

  • Li, Xing & Hou, Keqiang, 2024. "Investors' opinion disagreement and abnormal trading around pre-earnings announcements," International Review of Financial Analysis, Elsevier, vol. 91(C).
    • Handle: RePEc:eee:finana:v:91:y:2024:i:c:s1057521923005513
    DOI: 10.1016/j.irfa.2023.103035
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1057521923005513
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.irfa.2023.103035?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Kandel, Eugene & Pearson, Neil D, 1995. "Differential Interpretation of Public Signals and Trade in Speculative Markets," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 831-872, August.
    2. Giannini, Robert & Irvine, Paul & Shu, Tao, 2019. "The convergence and divergence of investors' opinions around earnings news: Evidence from a social network," Journal of Financial Markets, Elsevier, vol. 42(C), pages 94-120.
    3. Berkman, Henk & Dimitrov, Valentin & Jain, Prem C. & Koch, Paul D. & Tice, Sheri, 2009. "Sell on the news: Differences of opinion, short-sales constraints, and returns around earnings announcements," Journal of Financial Economics, Elsevier, vol. 92(3), pages 376-399, June.
    4. Snehal Banerjee & Ilan Kremer, 2010. "Disagreement and Learning: Dynamic Patterns of Trade," Journal of Finance, American Finance Association, vol. 65(4), pages 1269-1302, August.
    5. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
    6. Nagel, Stefan, 2005. "Short sales, institutional investors and the cross-section of stock returns," Journal of Financial Economics, Elsevier, vol. 78(2), pages 277-309, November.
    7. Campbell, Cynthia J & Wasley, Charles E, 1996. "Measuring Abnormal Daily Trading Volume for Samples of NYSE/ASE and NASDAQ Securities Using Parametric and Nonparametric Test Statistics," Review of Quantitative Finance and Accounting, Springer, vol. 6(3), pages 309-326, May.
    8. Miller, Edward M, 1977. "Risk, Uncertainty, and Divergence of Opinion," Journal of Finance, American Finance Association, vol. 32(4), pages 1151-1168, September.
    9. Kim, O & Verrecchia, Re, 1991. "Trading Volume And Price Reactions To Public Announcements," Journal of Accounting Research, Wiley Blackwell, vol. 29(2), pages 302-321.
    10. Varian, Hal R, 1985. "Divergence of Opinion in Complete Markets: A Note," Journal of Finance, American Finance Association, vol. 40(1), pages 309-317, March.
    11. Paul C. Tetlock, 2007. "Giving Content to Investor Sentiment: The Role of Media in the Stock Market," Journal of Finance, American Finance Association, vol. 62(3), pages 1139-1168, June.
    12. Hailiang Chen & Prabuddha De & Yu (Jeffrey) Hu & Byoung-Hyoun Hwang, 2014. "Wisdom of Crowds: The Value of Stock Opinions Transmitted Through Social Media," The Review of Financial Studies, Society for Financial Studies, vol. 27(5), pages 1367-1403.
    13. Bamber, Linda Smith & Barron, Orie E. & Stober, Thomas L., 1999. "Differential Interpretations and Trading Volume," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 34(3), pages 369-386, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Giannini, Robert & Irvine, Paul & Shu, Tao, 2019. "The convergence and divergence of investors' opinions around earnings news: Evidence from a social network," Journal of Financial Markets, Elsevier, vol. 42(C), pages 94-120.
    2. Al-Nasseri, Alya & Menla Ali, Faek, 2018. "What does investors' online divergence of opinion tell us about stock returns and trading volume?," Journal of Business Research, Elsevier, vol. 86(C), pages 166-178.
    3. Sheng, Xuguang (Simon) & Thevenot, Maya, 2015. "Quantifying differential interpretation of public information using financial analysts’ earnings forecasts," International Journal of Forecasting, Elsevier, vol. 31(2), pages 515-530.
    4. Mark Wong & Adrian Wai Kong Cheung & Wei Hu, 2021. "When two anomalies meet: Volume and timing effects on earnings announcements," The Financial Review, Eastern Finance Association, vol. 56(2), pages 355-380, May.
    5. Yen‐Cheng Chang & Pei‐Jie Hsiao & Alexander Ljungqvist & Kevin Tseng, 2022. "Testing Disagreement Models," Journal of Finance, American Finance Association, vol. 77(4), pages 2239-2285, August.
    6. Anzhela Knyazeva & Diana Knyazeva & Leonard Kostovetsky, 2018. "Investor heterogeneity and trading," European Financial Management, European Financial Management Association, vol. 24(4), pages 680-718, September.
    7. Siu Kai Choy & Hua Zhang, 2019. "Public news announcements, short-sale restriction and informational efficiency," Review of Quantitative Finance and Accounting, Springer, vol. 52(1), pages 197-229, January.
    8. Chen, Cathy Yi-Hsuan & Fengler, Matthias R. & Härdle, Wolfgang Karl & Liu, Yanchu, 2022. "Media-expressed tone, option characteristics, and stock return predictability," Journal of Economic Dynamics and Control, Elsevier, vol. 134(C).
    9. Antonio Gargano & Juan Sotes-Paladino & Patrick Verwijmeren, 2022. "Out of Sync: Dispersed Short Selling and the Correction of Mispricing," Working Papers 108, Red Nacional de Investigadores en Economía (RedNIE).
    10. Akey, Pat & Grégoire, Vincent & Martineau, Charles, 2022. "Price revelation from insider trading: Evidence from hacked earnings news," Journal of Financial Economics, Elsevier, vol. 143(3), pages 1162-1184.
    11. ÅžimÅŸek, Alp, 2021. "The Macroeconomics of Financial Speculation," CEPR Discussion Papers 15733, C.E.P.R. Discussion Papers.
    12. Hirota, Shinichi, 2023. "Money supply, opinion dispersion, and stock prices," Journal of Economic Behavior & Organization, Elsevier, vol. 212(C), pages 1286-1310.
    13. Ikeda, Naoshi, 2023. "Optimism, divergence of investors’ opinions, and the long-run underperformance of IPOs," Journal of Financial Markets, Elsevier, vol. 64(C).
    14. Hu, Yingyi & Zhao, Tiao & Zhang, Lin, 2020. "Noise trading, institutional trading, and opinion divergence: Evidence on intraday data in the Chinese stock market," International Review of Economics & Finance, Elsevier, vol. 68(C), pages 74-89.
    15. Xuguang Sheng & Maya Thevenot, 2013. "Differential Interpretation of Public Information: Estimation and Inference," Working Papers 2013-03, American University, Department of Economics.
    16. Carlin, Bruce I. & Longstaff, Francis A. & Matoba, Kyle, 2014. "Disagreement and asset prices," Journal of Financial Economics, Elsevier, vol. 114(2), pages 226-238.
    17. Bousselmi, Wael & Sentis, Patrick & Willinger, Marc, 2019. "How do markets react to (un)expected fundamental value shocks? An experimental analysis," Journal of Behavioral and Experimental Finance, Elsevier, vol. 23(C), pages 90-113.
    18. Chen, Cathy Yi-Hsuan & Fengler, Matthias R. & Härdle, Wolfgang Karl & Liu, Yanchu, 2018. "Textual Sentiment, Option Characteristics, and Stock Return Predictability," IRTG 1792 Discussion Papers 2018-023, Humboldt University of Berlin, International Research Training Group 1792 "High Dimensional Nonstationary Time Series".
    19. Maarten Meeuwis & Jonathan A. Parker & Antoinette Schoar & Duncan Simester, 2022. "Belief Disagreement and Portfolio Choice," Journal of Finance, American Finance Association, vol. 77(6), pages 3191-3247, December.
    20. Bruce I. Carlin & Francis A. Longstaff & Kyle Matoba, 2012. "Disagreement and Asset Prices," NBER Working Papers 18619, National Bureau of Economic Research, Inc.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finana:v:91:y:2024:i:c:s1057521923005513. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620166 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.