Review of Accounting Studies Vol. 15 No. 2 2010

Limited attention and the earnings announcement returns of past stock market winners

David Aboody¹; Reuven Lehavy^2,3; Brett Trueman¹

¹ University of California, Los Angeles · ² University of Michigan–Ann Arbor · ³ Ross School

Abstract

We document that stocks with the strongest prior 12-month returns experience a significant average market-adjusted return of 1.58% during the five trading days before their earnings announcements and a significant average market-adjusted return of −1.86% in the five trading days afterward. These returns remain significant even after accounting for transactions costs. We empirically test a limited attention explanation for these anomalous returns—that stocks with sharp run-ups tend to attract individual investors’ attention and investment dollars, particularly before their earnings announcements. Our analysis suggests that the trading decisions of individual investors are at least partly responsible for the return pattern that we observe.

DOI

10.1007/s11142-009-9104-9

Volume

15

Issue

2

Pages

317-344

Language

en

Sources

crossref openalex

Cite

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