Download or read book The Role of Institutional Investors in Post Earnings Announcement Drift written by Guilong Cai and published by . This book was released on 2020 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine how institutional investors influence post-earnings announcement drift (PEAD) in China. Our findings suggest that institutional holdings are positively correlated with PEAD in China, especially when institutional investors herd strongly on earnings news. This positive relationship is more salient for institutional investors with shorter investment horizons and in firms with higher information opacity. We also find that stock prices reverse in the fourth quarter after the earnings announcement. In contrast to the well-established view that institutional investors exploit PEAD and accelerate the speed of information incorporation, our findings suggest that they may instead exacerbate PEAD and slow down price discovery in emerging markets with different institutional backgrounds.
Download or read book Herding on Earnings News written by Linda H. Chen and published by . This book was released on 2018 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the role of institutional investors underlying post-earnings-announcement drift (PEAD). Our results show that while institutional investors generally herd on earnings news, such correlated trading among institutions does not eliminate or reduce market underreaction to earnings surprises. Instead, PEAD is significant only in the subsample of stocks where institutions herd in the same direction as earnings surprises. In fact, institutional herding is also positively related to next-quarter earnings announcement returns. We provide evidence that institutional herding on or against earnings news is largely driven by firm characteristics, particularly past firm performance and stock returns. In addition, we find that relative to non-transient institutions, transient institutions have a stronger tendency to herd on earnings information. Finally, based on long-run stock returns, we show that when institutions herd on earnings surprises, institutional trading represents a gradual process of incorporating information into stock prices. On the other hand, when institutions herd against earnings surprises, institutional trading slows down stock price discovery.
Download or read book Post Earnings Announcement Drift written by Joshua Livnat and published by . This book was released on 2008 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study explores an additional factor that is associated with differential levels of the post-earnings-announcement drift (henceforth drift) - the contemporaneous surprise in revenues. Consistent with prior evidence about greater persistence of revenues and greater noise caused by heterogeneity of expenses, this study shows that the earnings drift is stronger when the revenue surprise is in the same direction as the earnings surprise. Moreover, the study provides direct evidence that the drift is stronger when the earnings persistence is greater. The results are robust to various controls, including the proportions of stock held by institutional investors, trading liquidity, and arbitrage risk.
Download or read book Do Institutional Investors Exploit the Post Earnings Announcement Drift written by Bin Ke and published by . This book was released on 2004 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide evidence that transient institutional investors (i.e., those actively trading to maximize short term profits) trade to exploit the post-earnings announcement drift (PEAD). We estimate that transient institutions' arbitrage generates an abnormal return of 5.1 percent (or 22 percent annualized) after transaction costs. In addition, their arbitrage trades accelerate the speed that stock prices reflect the implications of current earnings for future earnings. However, transient institutions trade less aggressively to exploit PEAD in firms with high transaction costs. Our results contribute to understanding the role of transient institutional investors in explaining the persistence of PEAD.
Download or read book Impact of Investors Trading Activity to Post Earnings Announcement Drift written by Markku J. Vieru and published by . This book was released on 2005 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study focuses on post-earnings-announcement drift in an emerging market and whether it is associated with the trading activity of non-institutional trading around interim earnings announcements. We separate the stock trading activity of Finnish households into five trading classes. Data is all trades executed on the Helsinki Stock Exchange during 1996-2000. Results show that when earnings news contains only moderate price effects no clear evidence is found to show that trading by any of the specified non-institutional trading activity classes is particularly associated with price changes. However, excess buying of passive and intermediate individual investors after extremely negative earnings news seems to intensify the negative post-earnings returns. Also for extremely positive earnings news trading by individuals seems to be related to the post-earnings returns. In that sense post-earnings returns are related with the trading of non-institutional activity classes. However, the net trading of non-institutional investors with different trading activities on the announcement day does not affect the correlation between earnings surprises and subsequent returns. This suggests that the net trading of non-institutional investors' trading activity on the announcement event does not predict subsequent returns. Thus this result is consistent with that of Hirshleifer, Myers, Myers and Teoh (2003).
Download or read book Why Does the Post Earnings Announcement Drift Last for So Long An Explanation Based on the Investors Beliefs written by Xin Cui and published by . This book was released on 2014 with total page 65 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the role of investors' beliefs in determining the post earnings announcement drift (PEAD). Specifically, we propose a technique to estimate the belief parameters of the informed and uninformed investors, based on which we define the uninformed investors' information acceptance ratio (IAR). We demonstrate that IAR is a key factor determining the length of PEAD. IAR also explains the post announcement returns and the risk increases. Furthermore, we show that the earnings announcements contain both the hard and soft information. The hard information reduces uncertainty, whereas the soft information enhances uncertainty. And the latter effect dominates the former.
Download or read book Inefficient Markets written by Andrei Shleifer and published by OUP Oxford. This book was released on 2000-03-09 with total page 225 pages. Available in PDF, EPUB and Kindle. Book excerpt: The efficient markets hypothesis has been the central proposition in finance for nearly thirty years. It states that securities prices in financial markets must equal fundamental values, either because all investors are rational or because arbitrage eliminates pricing anomalies. This book describes an alternative approach to the study of financial markets: behavioral finance. This approach starts with an observation that the assumptions of investor rationality and perfect arbitrage are overwhelmingly contradicted by both psychological and institutional evidence. In actual financial markets, less than fully rational investors trade against arbitrageurs whose resources are limited by risk aversion, short horizons, and agency problems. The book presents and empirically evaluates models of such inefficient markets. Behavioral finance models both explain the available financial data better than does the efficient markets hypothesis and generate new empirical predictions. These models can account for such anomalies as the superior performance of value stocks, the closed end fund puzzle, the high returns on stocks included in market indices, the persistence of stock price bubbles, and even the collapse of several well-known hedge funds in 1998. By summarizing and expanding the research in behavioral finance, the book builds a new theoretical and empirical foundation for the economic analysis of real-world markets.
Download or read book Institutional Investor Participation and Stock Market Anomalies written by Tao Shu and published by . This book was released on 2012 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the impact of institutional trading volume on stock market anomalies. I construct a measure that evaluates the percentage of total trading volume of a stock accounted for by institutional trades. Using a large sample of firms from 1980ndash;2005, I find strong evidence that the strength of stock market anomalies such as price momentum, post-earnings announcement drift, the value premium, and the investment anomaly is decreasing in institutional trading volume. Additionally, the effects of institutional trading volume are stronger than those of institutional ownership, the major measure of institutional investor participation in the finance literature. These findings suggest that institutional trading significantly improves stock price efficiency.
Download or read book The Effect of Institutional Ownership on the Timing of Earnings Announcements written by Silver Chung and published by . This book was released on 2018 with total page 79 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Managers have substantial discretion in when to announce earnings during the day. While the prior literature has shown that the timing of announcements during the day can affect the stock market's reaction to earnings news, there is either mixed or weak empirical evidence on why a manager chooses a certain time of the day to announce earnings. In this paper, I examine whether institutional ownership affects firms' decisions to announce earnings after hours (AH). AH are largely dominated by institutional investors who better understand the implications of earnings news for firm value and stock prices. I argue that firms with greater institutional ownership announce earnings AH to promote institutional investors' trading, and therefore facilitate post-announcement price discovery and reduce price volatility. Using the annual reconstitution of the Russell 1000 and 2000 indexes which provides plausibly exogenous variation in institutional ownership, I find that firms with higher institutional ownership are more likely to announce earnings during an aftermarket session (i.e., AH after the market closes), but not during a premarket session (i.e., AH before the market opens). My analysis further shows that transient institutional ownership has a stronger influence on the likelihood of after-market announcements relative to quasi-indexer and dedicated institutional holdings, and that the effect of institutional ownership on the announcement timing is more pronounced when firms have bad earnings news or large transitory earnings components. Lastly, I find that announcing earnings during an after-market session indeed facilitates the post-announcement price discovery and reduces price volatility for firms with greater institutional ownership. Collectively, my findings suggest that institutional ownership influences firms' earnings announcement timing decisions"--Pages vii-viii.
Download or read book Post Earnings Announcement Drift in Global Markets written by Mingyi Hung and published by . This book was released on 2015 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate whether and how an exogenous and unprecedented improvement in the quality of non-U.S. firms' financial reporting affects post-earnings-announcement drift (PEAD). We find that PEAD declines after the information shock, and the decrease is more pronounced among firms with fewer concurrent earnings announcements, higher institutional holdings, and lower limits-to-arbitrage, and in countries with stronger enforcement. In addition, the decrease in PEAD is primarily driven by firms with greater changes in financial reporting, and an increase in analyst forecast accuracy, institutional ownership, and liquidity. Taken together, these findings support the mispricing explanation of PEAD in an international setting.
Download or read book Advances in Behavioral Finance written by Richard H. Thaler and published by Russell Sage Foundation. This book was released on 1993-08-19 with total page 628 pages. Available in PDF, EPUB and Kindle. Book excerpt: Modern financial markets offer the real world's best approximation to the idealized price auction market envisioned in economic theory. Nevertheless, as the increasingly exquisite and detailed financial data demonstrate, financial markets often fail to behave as they should if trading were truly dominated by the fully rational investors that populate financial theories. These markets anomalies have spawned a new approach to finance, one which as editor Richard Thaler puts it, "entertains the possibility that some agents in the economy behave less than fully rationally some of the time." Advances in Behavioral Finance collects together twenty-one recent articles that illustrate the power of this approach. These papers demonstrate how specific departures from fully rational decision making by individual market agents can provide explanations of otherwise puzzling market phenomena. To take several examples, Werner De Bondt and Thaler find an explanation for superior price performance of firms with poor recent earnings histories in the tendencies of investors to overreact to recent information. Richard Roll traces the negative effects of corporate takeovers on the stock prices of the acquiring firms to the overconfidence of managers, who fail to recognize the contributions of chance to their past successes. Andrei Shleifer and Robert Vishny show how the difficulty of establishing a reliable reputation for correctly assessing the value of long term capital projects can lead investment analysis, and hence corporate managers, to focus myopically on short term returns. As a testing ground for assessing the empirical accuracy of behavioral theories, the successful studies in this landmark collection reach beyond the world of finance to suggest, very powerfully, the importance of pursuing behavioral approaches to other areas of economic life. Advances in Behavioral Finance is a solid beachhead for behavioral work in the financial arena and a clear promise of wider application for behavioral economics in the future.
Download or read book The Handbook of Equity Market Anomalies written by Leonard Zacks and published by John Wiley & Sons. This book was released on 2011-08-24 with total page 352 pages. Available in PDF, EPUB and Kindle. Book excerpt: Investment pioneer Len Zacks presents the latest academic research on how to beat the market using equity anomalies The Handbook of Equity Market Anomalies organizes and summarizes research carried out by hundreds of finance and accounting professors over the last twenty years to identify and measure equity market inefficiencies and provides self-directed individual investors with a framework for incorporating the results of this research into their own investment processes. Edited by Len Zacks, CEO of Zacks Investment Research, and written by leading professors who have performed groundbreaking research on specific anomalies, this book succinctly summarizes the most important anomalies that savvy investors have used for decades to beat the market. Some of the anomalies addressed include the accrual anomaly, net stock anomalies, fundamental anomalies, estimate revisions, changes in and levels of broker recommendations, earnings-per-share surprises, insider trading, price momentum and technical analysis, value and size anomalies, and several seasonal anomalies. This reliable resource also provides insights on how to best use the various anomalies in both market neutral and in long investor portfolios. A treasure trove of investment research and wisdom, the book will save you literally thousands of hours by distilling the essence of twenty years of academic research into eleven clear chapters and providing the framework and conviction to develop market-beating strategies. Strips the academic jargon from the research and highlights the actual returns generated by the anomalies, and documented in the academic literature Provides a theoretical framework within which to understand the concepts of risk adjusted returns and market inefficiencies Anomalies are selected by Len Zacks, a pioneer in the field of investing As the founder of Zacks Investment Research, Len Zacks pioneered the concept of the earnings-per-share surprise in 1982 and developed the Zacks Rank, one of the first anomaly-based stock selection tools. Today, his firm manages U.S. equities for individual and institutional investors and provides investment software and investment data to all types of investors. Now, with his new book, he shows you what it takes to build a quant process to outperform an index based on academically documented market inefficiencies and anomalies.
Download or read book Caught on Tape written by John Y. Campbell and published by . This book was released on 2007 with total page 63 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Sell on the News written by Valentin Dimitrov and published by . This book was released on 2012 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: Miller (1977) hypothesizes that differences of opinion among investors about stock value result in overvaluation so long as some investors are short-sales constrained. Prior evidence on the role of differences of opinion for stock prices has not yielded convincing evidence. We test the Miller hypothesis by focusing on earnings announcements because such announcements generally reduce differences of opinion among investors and, hence, are also likely to reduce overvaluation if the Miller hypothesis is true. We provide statistically significant and economically meaningful evidence in support of the Miller hypothesis. We find that the three-day hedge returns (returns on low minus high differences of opinion stocks) around earnings announcements are 0.2749% (23% annualized) to 0.7132% (60% annualized), depending upon the proxy for differences of opinion. The results are robust to alternative explanations such as the effects of financial leverage, post-earnings-announcement-drift and earnings announcement premium. Additional analysis using institutional ownership as a proxy for short-sales constraints further strengthens our conclusions regarding the Miller hypothesis. We find that the association between differences of opinion and announcement period returns is magnified within the subsample of stocks that are most difficult for investors to sell short.
Download or read book Corporate Governance Strengthening Latin American Corporate Governance The Role of Institutional Investors written by OECD and published by OECD Publishing. This book was released on 2011-07-01 with total page 78 pages. Available in PDF, EPUB and Kindle. Book excerpt: This report reflects long-term, in-depth discussion and debate by participants in the Latin American Roundtable on Corporate Governance.
Download or read book Institutional Investors and the Information Content of Earnings Announcements written by Piotr Korczak and published by . This book was released on 2005 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Institutional Investors Long Term Investment and Earnings Management written by Brian J. Bushee and published by . This book was released on 2011 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the influence of institutional investors on the incentives of corporate managers to alter long-term investment for earnings management purposes. Many critics argue that the short-term focus of institutional investors encourages managers to sacrifice long-term investment to meet current earnings targets. Others argue that the large stockholdings and sophistication of institutions allow them to fulfill a monitoring role in preventing such myopic investment behavior. I examine these competing views by testing whether institutional ownership affects Ramp;D spending for firms that could reverse a decline in earnings with a reduction in Ramp;D. The results indicate that managers are less likely to cut Ramp;D to reverse an earnings decline when institutional ownership is high, implying that institutions typically serve a monitoring role relative to individual investors. However, I find that a high proportion of ownership by institutions exhibiting ?transient? ownership behavior (i.e., high portfolio turnover and momentum trading) significantly increases the probability that managers reduce Ramp;D to boost earnings. These results indicate that high turnover and momentum trading by institutional investors can encourage myopic investment behavior when such institutional investors have extremely high levels of ownership in a firm; otherwise, institutional ownership serves to reduce pressures on managers for myopic investment behavior.
