scholarly journals The Market Sentiment Trend, Investor Inertia, and Post-Earnings Announcement Drift: Evidence from Korea’s Stock Market

2019 ◽  
Vol 11 (18) ◽  
pp. 5137 ◽  
Author(s):  
Shin ◽  
Shin ◽  
Kim
Keyword(s):  
Stock Market ◽  
Stock Price ◽  
Specific Point ◽  
Market Anomalies ◽  
Earnings Announcement ◽  
Market Sentiment ◽  
Earnings Information ◽  
Post Earnings Announcement Drift ◽  
Negative Drift ◽  
Directional Trend

We investigated whether post-earnings announcement drift (PEAD) in the Korean stock market is related to investor inertial behavior under a directional trend in market sentiment. Given that investors tend to procrastinate due to their belief in the persistence of the current market’s condition and thus underreact to earnings information, we examined whether this investor inertia influences the drift in stock price following an earnings announcement. Our findings show that when the market sentiment continues to shift upwardly (downwardly) over the pre- and post-earnings announcement period, positive (negative) drift occurs. Note that these results are robust to control for the effect of market sentiment at a specific point in time. We suggest that investors do not fully respond to new earnings information due to investor inertial behavior under the market sentiment with a consistent trend. Overall, our study sheds light on a determinant of PEAD as one of the market anomalies in terms of investors’ cognitive bias by documenting the relation between PEAD and investor inertia.

Impact of Information Technology on Post-Earnings Announcement Drift

2003 ◽  
Vol 17 (1) ◽  
pp. 1-17 ◽  
Author(s):  
Sharad Asthana
Keyword(s):  
Information Technology ◽  
Transaction Costs ◽  
Value Relevance ◽  
Forecast Errors ◽  
Informational Efficiency ◽  
Market Anomalies ◽  
Earnings Announcement ◽  
Earnings Information ◽  
Post Earnings Announcement Drift ◽  
Time Changes

Post-earnings announcement drift is among the most persistent market anomalies. Two possible causes of the drift are transaction costs that dissuade investors from trading on earnings information immediately, and the market's inability to fully interpret the implications of earnings information. This study hypothesizes that information technology advances have significantly reduced the transaction costs of trading equity stocks and improved the informational efficiency of the capital market. These two changes should, therefore, reduce drift. Using a sample of over 27,000 firm-quarter observations for more than 1,600 firms, the results support the hypothesis that drift has declined significantly with the growth of information technology. The results are robust after controlling for factors correlated with time, changes in the value-relevance of earnings, and previously identified variables that affect the drift, such as size, investor sophistication, and magnitude and sign of analysts' forecast errors. The study provides evidence that the information technology revolution may reduce trading friction and improve informational efficiency.

scholarly journals Building stock market resilience through digital transformation: using Google trends to analyze the impact of COVID-19 pandemic

2020 ◽  
Vol 14 (1) ◽  
Author(s):  
Ding Ding ◽  
Chong Guan ◽  
Calvin M. L. Chan ◽  
Wenting Liu
Keyword(s):  
Stock Market ◽  
Stock Prices ◽  
Stock Price ◽  
Digital Transformation ◽  
Google Trends ◽  
Building Stock ◽  
Market Sentiment ◽  
Price Performance ◽  
Novel Coronavirus ◽  
The Impact

Abstract As the 2019 novel coronavirus disease (COVID-19) pandemic rages globally, its impact has been felt in the stock markets around the world. Amidst the gloomy economic outlook, certain sectors seem to have survived better than others. This paper aims to investigate the sectors that have performed better even as market sentiment is affected by the pandemic. The daily closing stock prices of a total usable sample of 1,567 firms from 37 sectors are first analyzed using a combination of hierarchical clustering and shape-based distance (SBD) measures. Market sentiment is modeled from Google Trends on the COVID-19 pandemic. This is then analyzed against the time series of daily closing stock prices using augmented vector autoregression (VAR). The empirical results indicate that market sentiment towards the pandemic has significant effects on the stock prices of the sectors. Particularly, the stock price performance across sectors is differentiated by the level of the digital transformation of sectors, with those that are most digitally transformed, showing resilience towards negative market sentiment on the pandemic. This study contributes to the existing literature by incorporating search trends to analyze market sentiment, and by showing that digital transformation moderated the stock market resilience of firms against concern over the COVID-19 outbreak.

Short Selling and Price Pressures in the Korean Stock Market

2015 ◽  
Vol 23 (2) ◽  
pp. 265-287
Author(s):  
Yeongseop Rhee ◽  
Sang Buhm Hahn
Keyword(s):  
Stock Market ◽  
Stock Prices ◽  
Stock Price ◽  
Short Selling ◽  
Market Liquidity ◽  
Dynamic Panel Model ◽  
Market Sentiment ◽  
Order Imbalance ◽  
Price Decline ◽  
Korean Stock Market

This paper examines short-selling activity focusing on its behavior during non-normal times of occasional excesses in the Korean stock market. Using the methodology explained by Brunnermeier and Pederson (2005) and Shkilko et al. (2009; 2012), we first examine whether short-selling is predatory on those event days of large price reversals. Overall there is little predatory abnormal short-selling in the pre-rebound phase and we can observe active contrarian short-selling in the post-rebound phase. When we compared aggressiveness between short-selling and non-short-selling using order imbalance variables, we found that non-short selling is much more aggressive than short selling in the Korean stock market. From the observation of market liquidity measured by quoted spreads, we could find that market liquidity is somewhat limited during price decline stages while it slightly improves during price reversal phases. Also, using dynamic panel model, we test the influences of those variables on stock price changes and disaggregate the compound effect of short-selling reflected in trading volume itself into differentiated ones not only through pure trading channel but also through other complicated channels such as market sentiment change. Main findings from the regression results are as follows : In the Korean stock market, short sellers seem to behave as a contrarian trader rather than a momentum trader; seller-initiated aggressive trading, whether it is by short-selling or non-short-selling, leads to negative order imbalance and price decline; market liquidity is limited by short-selling and further pressure on price decline is added in the pre-rebound stage; and stock prices are affected not only through pure selling (buying) channel but also through other channels in the Korean stock market.

scholarly journals Factor momentum, option-implied volatility scaling, and investor sentiment

2021 ◽  
Author(s):  
Klaus Grobys ◽  
James W. Kolari ◽  
Jere Rutanen
Keyword(s):  
Stock Price ◽  
Implied Volatility ◽  
Statistical Significance ◽  
Investor Sentiment ◽  
Earnings Announcement ◽  
Price Momentum ◽  
Post Earnings Announcement Drift

AbstractFactor momentum produces robust average returns that exhibit a similar economic magnitude as stock price momentum. To the extent that the post-earnings announcement drift (PEAD) factor captures mispricing, winner factors earn profits from being long on underpriced stocks and short on overpriced stocks. Conversely, loser-factors’ negative exposure to the PEAD factor suggests that loser factors capture mispricing by being long on overpriced stocks and short on underpriced stocks. Option-implied volatility scaling increases both the economic magnitude and statistical significance of factor momentum. Factor momentum is not exposed to the same crashes as stock price momentum and therefore could provide a hedge for stock price momentum crash risks. Also, factor momentum mispricing is more pronounced when investor sentiment is high.

The Effects of Pro Forma Earnings Disclosures on Analysts' and Nonprofessional Investors' Equity Valuation Judgments

2004 ◽  
Vol 79 (3) ◽  
pp. 667-686 ◽  
Author(s):  
James R. Frederickson ◽  
Jeffrey S. Miller
Keyword(s):  
Stock Price ◽  
Cash Flows ◽  
Earnings Announcement ◽  
Nonprofessional Investors ◽  
Earnings Information ◽  
Pro Forma Earnings ◽  
Performance Metric ◽  
Earnings Disclosures ◽  
A Company ◽  
Pro Forma

This paper presents an experiment that examines the effect of pro forma earnings disclosures on the judgments of analysts (i.e., more sophisticated investors) and nonprofessional (i.e., less sophisticated) investors. In the experiment, participants developed stock price assessments after reviewing background financial information and a current earnings announcement for a company. The earnings announcement was manipulated to report only GAAP earnings in one condition and both pro forma and GAAP earnings in the other condition. Consistent with empirical evidence, the pro forma earnings in our experiment exceeded GAAP earnings. The results indicate that nonprofessional investors who received an earnings announcement that contained both pro forma and GAAP disclosures assessed a higher stock price than did nonprofessionals who received an announcement containing only GAAP disclosures. Financial analysts' stock price judgments were not affected by the pro forma disclosures. Followup analyses suggest that analysts and nonprofessional investors used different valuation models and information processing. Analysts used well-defined valuation models, based on either earnings-multiples or cash flows, while the nonprofessional investors were more likely to use simpler, heuristic-based valuation models. The pro forma disclosure did not cause nonprofessional investors to assess a higher earnings number for determining a stock price, but rather caused nonprofessionals to perceive the earnings announcement as more favorable, which in turn caused them to convert earnings or some other performance metric into a higher stock price. This effect appears to be due to unintentional cognitive effects, rather than nonprofessionals relying on pro forma earnings information because they perceived it to be informative.

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