The Effects of Individual Investor Trading on Post-Earnings Announcement Drift

Lee, Hyo Jeong; Choe, Hyuk

Korean Journal of Financial Studies 2012;41(3):393-436.
Published online June 30, 2012.

Hyo Jeong Lee, Hyuk Choe

개인투자자의 거래행태가 실적공시에 대한 주가지연반응(PEAD)에 미치는 영향

이효정, 최혁

Abstract

This study examines the effects of individuals` initiated trades on the Post-earnings announcement drift. We analyze how individual investors using initiated trades invest in response to earnings announcements and how individual investors` initiated trades following the announcement influence on the subsequent abnormal returns. We find no evidence that individuals` initiated trades cause Post-earnings announcement drift. Individual investors using initiated trades do not trade in the opposite direction to the earnings news(i.e., do not exhibit news-contrarian behavior). And intense individuals` contrarian initiated trading following the announcement is associated with weaker earnings-drift rather than stronger earnings-drift. This result is inconsistent with both prior research and the view of Behavioral Finance. The reason of this inconsistency would be that Korean individuals using initiated trades are informed-traders. Actually, we find that intense individual initiated buying(selling) following the announcement is associated with significant positive(negative) cumulative abnormal returns subsequent to the individual trading. It means that individual investors tend to take some profits through initiated trading around earnings announcement. Individual investors using initiated trades seem to be compensated for both liquidity provision and private information.

Key Words: 개인투자자,실적공시,정보투자자,주가지연반응,컨트래리안,Behavioral Finance,Contrarian Trade,Individual Investor,Informed-trader,Post-Earnings Announcement Drift