Small Trader Reactions to Consecutive Earnings Surprises

Abstract

This paper tests whether traders react more strongly as a series of similar earnings surprises continues, as predicted by several important behavioral finance models. We compile measures of buying and selling from NYSE TAQ data for a large ten-year sample. Results show strong, consistent, evidence that small traders exhibit an increasing reaction – with significant increases in reaction strength between the first, second, and third surprises. Large traders do not exhibit an increase, with similar reactions to each surprise. We find additional support for prior results that post-earnings-announcement drift is weaker for each subsequent surprise in a series. JEL Classifications: G14, G10, G12, M41

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Cite this paper

@inproceedings{Shanthikumar2004SmallTR, title={Small Trader Reactions to Consecutive Earnings Surprises}, author={Devin Shanthikumar and Lukasz Pomorski}, year={2004} }