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Individual investors and post-earnings-announcement drift: Evidence from Korea

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  • Eom, Yunsung
  • Hahn, Jaehoon
  • Sohn, Wook

Abstract

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.

Suggested Citation

  • Eom, Yunsung & Hahn, Jaehoon & Sohn, Wook, 2019. "Individual investors and post-earnings-announcement drift: Evidence from Korea," Pacific-Basin Finance Journal, Elsevier, vol. 53(C), pages 379-398.
    • Handle: RePEc:eee:pacfin:v:53:y:2019:i:c:p:379-398
    DOI: 10.1016/j.pacfin.2018.12.002
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    References listed on IDEAS

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    Cited by:

    1. Liu, Chunyuan & Han, Liyan & Chu, Gang, 2023. "The effect of overnight corporate announcements on price discovery," Finance Research Letters, Elsevier, vol. 53(C).
    2. Chu, Gang & Dowling, Michael & Shen, Dehua & Zhang, Yongjie, 2023. "Information demand density matters: Evidence from the post-earnings announcement drift," International Review of Financial Analysis, Elsevier, vol. 86(C).
    3. Chen, Xing & Diao, Xundi & Wu, Chongfeng, 2022. "Heterogeneous investor attention and post earnings announcement drift: Evidence from China," Economic Modelling, Elsevier, vol. 110(C).
    4. Djalilov, Abdulaziz & Ülkü, Numan, 2021. "Individual investors’ trading behavior in Moscow Exchange and the COVID-19 crisis," Journal of Behavioral and Experimental Finance, Elsevier, vol. 31(C).
    5. Zhang, Sijia & Gregoriou, Andros, 2020. "Post earnings announcement drift, liquidity and zero leverage firms: Evidence from the UK stock market," Journal of Business Research, Elsevier, vol. 116(C), pages 13-26.
    6. Zhang, Sijia & Gregoriou, Andros & Wu, He, 2024. "Asymmetric post earnings announcement drift and order flow imbalance: The impact on stock market returns," International Review of Financial Analysis, Elsevier, vol. 94(C).
    7. repec:grz:wpsses:2020-04 is not listed on IDEAS
    8. Zhaobo Zhu & Licheng Sun & Jun Tu, 2021. "Earnings momentum meets short‐term return reversal," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(S1), pages 2379-2405, April.
    9. Fink, Josef, 2021. "A review of the Post-Earnings-Announcement Drift," Journal of Behavioral and Experimental Finance, Elsevier, vol. 29(C).
    10. Ho, Tuan Q. & Nguyen, Y. & Tran, Hieu, 2024. "The impact of insider ownership and institutional ownership on post-earnings-announcement-drift: Evidence from Vietnam," Research in International Business and Finance, Elsevier, vol. 70(PB).

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    More about this item

    Keywords

    Post-earnings-announcement drift; Market efficiency; Underreaction; Individual investors;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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