How Do Different Types of Investors React to New Earnings Information?


  • Anders Ekholm

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      The author is from the Department of Finance, Swedish School of Economics and Business Administration, Helsinki, Finland. He is indebted to Mohammed Aba Al-Khail, Tom Berglund, Juha-Pekka Kallunki, Matti Keloharju, Eva Liljeblom, Joshua Livnat, Anders Löflund, Daniel Pasternack, Timo Rothovius, Jan Wallin, an anonymous referee and the participants of the GSFFA February 2001 Monday Seminar, the GSFFA 2001 Research Workshop, the University of Oulu 2001 Finance Research Workshop, and the Eastern Finance Association 2003 Annual Meeting for comments and suggestions. He further wants to thank Ilkka Autio for providing analysts’ consensus estimates and Joakim Westerholm for providing access to the Finnish Central Securities Depository Central Register dataset. Finally, he gratefully acknowledges financial support received for the project from the Finnish Academy of Sciences, the Hans Bang Foundation and the Yrjö Jahnsson Foundation. (Paper received June 2003, revised version accepted February 2005.)

†Anders Ekholm, Department of Finance, Swedish School of Economics and Business Administration, PO Box 479, 00101 Helsinki, Finland.


Abstract:  The purpose of this study is to investigate how different types of investors react to new earnings information. Using the extremely comprehensive official register of share holdings in Finland, we find that the majority of investors are more likely to sell (buy) stocks in a company after a positive (negative) earnings surprise and that they are biased towards buying after the disclosure of an annual report. Large investors show behaviour opposite to that of the majority of investors. We consider several possible explanations for this heterogeneous investor behaviour, of which differences in investor overconfidence emerges as the strongest candidate.