The Journal of Finance

The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.

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Individual Investor Trading and Return Patterns around Earnings Announcements

Published: 03/27/2012   |   DOI: 10.1111/j.1540-6261.2012.01727.x

RON KANIEL, SHUMING LIU, GIDEON SAAR, SHERIDAN TITMAN

This paper provides evidence of informed trading by individual investors around earnings announcements using a unique data set of NYSE stocks. We show that intense aggregate individual investor buying (selling) predicts large positive (negative) abnormal returns on and after earnings announcement dates. We decompose abnormal returns following the event into information and liquidity provision components, and show that about half of the returns can be attributed to private information. We also find that individuals trade in both return‐contrarian and news‐contrarian manners after earnings announcements. The latter behavior has the potential to slow the adjustment of prices to earnings news.