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Investor Sophistication and Patterns in Stock Returns after Earnings Announcements
Open accessAbstract
This study tests whether the observed patterns in stock returns after quarterly earnings announcements are related to the proportion of firm shares held by institutional investors, a variable used by prior research to proxy for investor sophistication. Our findings show that the institutional holdings variable is negatively correlated with the observed post-announcement abnormal returns. Our findings also show that traditional proxies for transaction costs (i.e., trading volume, stock price) as well as firm size have little incremental power to explain post-announcement abnormal returns when institutional holdings is an explanatory variable. If institutional ownership is a valid proxy for investor sophistication, these findings suggest that the trading activity of unsophisticated investors underlies the predictability of stock returns after earnings announcements. However, tests evaluating the validity of institutional holdings as a proxy for investor sophistication yield only mixed results. This calls for caution in interpreting our findings.
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Cites
Regression Diagnostics: Identifying Influential Data and Sources of Collinearity
Belsley, D. A., Kuh, E., & Welsch, R. E. (1980) · Wiley Series in Probability and Statistics · doi:10.1002/0471725153 · Cited by 7,297
Cited by
Just how much do individual investors lose by trading?
Barber, B. M., Lee, Y.-T., Liu, Y.-J., & Odean, T. (2009) · Review of Financial Studies · doi:10.1093/rfs/hhn046 · Cited by 953
Griffin, J. M., Kelly, P. J., & Nardari, F. (2010) · Review of Financial Studies · doi:10.1093/rfs/hhq044 · Cited by 556
Arbitrage risk and the book-to-market anomaly
Ali, A., Hwang, L.-S., & Trombley, M. A. (2003) · Journal of Financial Economics · doi:10.1016/s0304-405x(03)00116-8 · Cited by 518
The cost of financial flexibility: Evidence from share repurchases
Bonaimé, A. A., Hankins, K. W., & Jordan, B. D. (2016) · Journal of Corporate Finance · doi:10.1016/j.jcorpfin.2016.02.002 · Cited by 68
Chung, C. Y., Lee, J., & Park, J. (2014) · Asia-Pacific Journal of Financial Studies · doi:10.1111/ajfs.12043 · Cited by 19
Metadata
- Authors
- Bartov, E., Radhakrishnan, S., & Krinsky, I.
- Venue
- The Accounting Review
- Publisher
- American Accounting Association
- Published
- 2000-01-01
- Volume
- 75
- Issue
- 1
- Pages
- 43-63
- ISSN
- 0001-4826 (ISSN-L)
- 1558-7967
- OpenAlex
- W2030896546
- Cited by
- 745
- References
- 1
- FWCI
- 22.08
- Type
- journal article
- Language
- en
- Open access
- green
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- Bartov, E., Radhakrishnan, S., & Krinsky, I. (2000). Investor Sophistication and Patterns in Stock Returns after Earnings Announcements. The Accounting Review. https://doi.org/10.2308/accr.2000.75.1.43
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
