Earnings expectations, investor trade size, and anomalous returns around earnings announcements

Battalio, Robert H.; Mendenhall, Richard R.

doi:10.1016/j.jfineco.2004.08.002

Cited by 255 publications

(141 citation statements)

References 29 publications

Supporting

Mentioning

130

Contrasting

Unclassified

Order By: Relevance

“…Each column of Table 4 The results that appear in both Panels A and B of Table 4 confirm those of Battalio and Mendenhall (2005) for our sample. The first column of Table 4 shows that the smallest traders respond more strongly to seasonal random walk forecast errors than to analyst forecast errors and the opposite is true for the largest traders on the right side of Those who initiate the smallest trades, presumably individual investors, exhibit the specific type of unsophisticated behavior hypothesized by Bernard and Thomas (1990) to cause post-earnings announcement drift.…”

Section: Investor Response To Earnings Surprise By Trade Sizesupporting

confidence: 75%

“…We estimate the preliminary earnings surprise using both time-series and analyst forecasts, since Battalio and Mendenhall (2005) show that small traders are likely to use time-series forecasts whereas large traders tend to use analyst forecasts. Consistent with prior studies, we use rolling windows of historical data to define the time-series measure of standardized unexpected earnings (SUE).…”

Section: Estimation Of Earnings Surprise and Accrualsmentioning

confidence: 99%

“…For these reasons, we follow Battalio and Mendenhall (2005) and examine six groups of trades based on size: 100 -400 shares, 500 shares, 600 -900 shares, 1,000 shares, 1,100 -4,900 shares, and 5,000 and more shares. Since quoted prices are guaranteed up to the advertised number of shares and since the average number of shares available at posted prices for less liquid stocks was less than 5,000 shares during our sample period, we expect trades in the 5,000 and more shares trade-size category to correspond to the trading interest of wealthy, sophisticated investors with access to superior information.…”

mentioning

confidence: 99%

“…Following Battalio and Mendenhall (2005), we use our sample of trades classified as buys and sells to construct a measure of abnormal net buying activity for each of the six trade-size categories around two events: the preliminary earnings release date (ERD) and the filing date (FD). For each category, we subtract the number of sell trades during the three trading days centered on the event date from the number of buy trades over the same period.…”

mentioning

confidence: 99%

See 3 more Smart Citations

Who, if anyone, reacts to accrual information?

Battalio

Lerman

Livnat

et al. 2012

Journal of Accounting and Economics

View full text Add to dashboard Cite

_____________________________________________________________________________________ AbstractWe confirm and extend prior research that suggests accrual levels predict future returns, even after controlling for earnings surprise. We then document abnormal buying behavior around 10-K/Q filing dates that correlates with accrual level. Specifically, we extend Collins and Hribar (2000) by showing that the accrual anomaly persists for a sample of firms followed by analysts after controlling for analyst earnings forecast errors and using exact 10-K/Q filing dates. We then show that large traders, those who initiate trades of at least 5,000 shares, tend to trade in the correct direction in response to accrual information released in SEC filings after preliminary earnings. This tendency is limited, however, to cases where earnings conveyed favorable news initially. Investors who use accrual information apparently ignore stocks whose earnings convey unfavorable news or believe that accrual level is not informative for these firms. We also provide some evidence that the smallest traders react to accrual information, but in the wrong direction. Other authors' email addresses: rbattali@nd.edu, alerman@stern.nyu.edu, jlivnat@stern.nyu.edu, respectively.Electronic copy of this paper is available at: http://ssrn.com/abstract=971007 AbstractWe confirm and extend prior research that suggests accrual levels predict future returns, even after controlling for earnings surprise. We then document abnormal buying behavior around 10-K/Q filing dates that correlates with accrual level. Specifically, we extend Collins and Hribar (2000) by showing that the accrual anomaly persists for a sample of firms followed by analysts after controlling for analyst earnings forecast errors and using exact 10-K/Q filing dates. We then show that large traders, those who initiate trades of at least 5,000 shares, tend to trade in the correct direction in response to accrual information released in SEC filings after preliminary earnings. This tendency is limited, however, to cases where earnings conveyed favorable news initially. Investors who use accrual information apparently ignore stocks whose earnings convey unfavorable news or believe that accrual level is not informative for these firms. We also provide some evidence that the smallest traders react to accrual information, but in the wrong direction.

show abstract

Section: Investor Response To Earnings Surprise By Trade Sizesupporting

confidence: 75%

Section: Estimation Of Earnings Surprise and Accrualsmentioning

confidence: 99%

mentioning

confidence: 99%

mentioning

confidence: 99%

See 2 more Smart Citations

Who, if anyone, reacts to accrual information?

Battalio

Lerman

Livnat

et al. 2012

Journal of Accounting and Economics

View full text Add to dashboard Cite

show abstract

“…Battalio and Mendenhall (2005) show that retail investors systematically under-estimate the implication of earnings announcements for future earnings. Malmendier and Shanthikumar (2007) report that retail investors fail to adjust bias in analysts' recommendations.…”

Section: Experimental Evidence Indicates That Retail Investors Tend Tmentioning

confidence: 97%

Who Uses Financial Reports and for What Purpose? Evidence from Capital Providers

Cascino

Clatworthy

Osma

et al. 2014

Accounting in Europe

View full text Add to dashboard Cite

We review the academic literature on the use of financial reporting information by capital providers. We classify our findings by investor type and by information objective. While most capital providers use accounting information, our survey indicates that they do so in a variety of ways with financial reporting information competing with other sources of information. We also find that information intermediaries are influential in both credit and equity markets, making the identification of a typical target 'user' inherently difficult. Our main findings question the underlying objective of the Conceptual Framework to guide the development of standards for general-purpose financial statements to provide a typical knowledgeable investor with a true and fair view about the reporting entity. Finally, we identify gaps in the literature and suggest areas where future research can help inform important academic and policy debates.

show abstract

Bibliography

2012

Regulating Competition in Stock Markets

View full text Add to dashboard Cite

Earnings expectations, investor trade size, and anomalous returns around earnings announcements

Cited by 255 publications

References 29 publications

Who, if anyone, reacts to accrual information?

Who, if anyone, reacts to accrual information?

Who Uses Financial Reports and for What Purpose? Evidence from Capital Providers

Bibliography

Contact Info

Product

Resources

About