Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Limited Investor Attention and Stock Market Misreactions to Accounting Information

Limited Investor Attention and Stock Market Misreactions to Accounting Information We provide a model in which a single psychological constraint, limited attention, explains both under- and overreaction to different earnings components. Investor neglect of earnings induces post-earnings announcement drift and the profit anomaly. Neglect of earnings components causes accrual and cash flow anomalies. The model offers empirical implications relating the strength of earnings-related anomalies to the forecasting power of current earnings-related information for future earnings, investor attentiveness, and the volatilities of and correlation between accruals and cash flows. We also show that, owing to attention costs, in equilibrium not all investors choose to attend to earnings or its components. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Review of Asset Pricing Studies Oxford University Press

Limited Investor Attention and Stock Market Misreactions to Accounting Information

Loading next page...
 
/lp/oxford-university-press/limited-investor-attention-and-stock-market-misreactions-to-accounting-ubsb3ytVP9

References (0)

References for this paper are not available at this time. We will be adding them shortly, thank you for your patience.

Publisher
Oxford University Press
Copyright
© The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com.
ISSN
2045-9920
eISSN
2045-9939
DOI
10.1093/rapstu/rar002
Publisher site
See Article on Publisher Site

Abstract

We provide a model in which a single psychological constraint, limited attention, explains both under- and overreaction to different earnings components. Investor neglect of earnings induces post-earnings announcement drift and the profit anomaly. Neglect of earnings components causes accrual and cash flow anomalies. The model offers empirical implications relating the strength of earnings-related anomalies to the forecasting power of current earnings-related information for future earnings, investor attentiveness, and the volatilities of and correlation between accruals and cash flows. We also show that, owing to attention costs, in equilibrium not all investors choose to attend to earnings or its components.

Journal

The Review of Asset Pricing StudiesOxford University Press

Published: Dec 27, 2011

Keywords: JEL G12 G14 M41

There are no references for this article.