Volume, Opinion Divergence, and Returns: A Study of Post–Earnings Announcement Drift


  • We thank Anwer Ahmed, Matt Billett, Dan Collins, Amy Edwards, Christi Gleason, Bruce Johnson, Ed Miller, George Neumann, Mort Pincus, Tom Rietz, and Anand Vijh for helpful comments. We are particularly grateful to an anonymous referee for many insightful comments and to the editor (Ray Ball) for his suggestions. All remaining errors are our own. The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed herein are solely those of the authors and do not necessarily reflect the views of the Commission or of the authors' colleagues upon the staff of the Commission. We thank I/B/E/S for providing data under a program to encourage academic research using analyst forecast data.


This paper examines the relationship between post–earnings announcement returns and different measures of volume at the earnings date. We find that post-event returns are strictly increasing in the component of volume that is unexplained by prior trading activity. We interpret unexplained volume as an indicator of opinion divergence among investors and conclude that post-event returns are increasing in ex ante opinion divergence. Our evidence is consistent with Varian [1985], who suggests that opinion divergence may be treated as an additional risk factor affecting asset prices.