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Overreaction to Intra-industry Information Transfers?

Authors

  • JACOB THOMAS,

    1. Yale University, School of Management. We thank an anonymous referee and Ray Ball (the editor) for numerous comments and suggestions. Thanks also to Andrew Anabila, Tarun Chordia, Owen Lamont, Krishnamoorthy Ramesh, Avanidhar Subrahmanyam, Sheridan Titman, Tuomo Vuolteenaho, Jerry Zimmerman, and seminar participants at the University of Minnesota, Penn State University, Southern Methodist University, and Yale University for helpful comments.
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  • FRANK ZHANG

    1. Yale University, School of Management. We thank an anonymous referee and Ray Ball (the editor) for numerous comments and suggestions. Thanks also to Andrew Anabila, Tarun Chordia, Owen Lamont, Krishnamoorthy Ramesh, Avanidhar Subrahmanyam, Sheridan Titman, Tuomo Vuolteenaho, Jerry Zimmerman, and seminar participants at the University of Minnesota, Penn State University, Southern Methodist University, and Yale University for helpful comments.
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ABSTRACT

Prior research has documented that earnings announcements provide information not only about the announcing firm but also about other firms in the same industry. We document a stock market anomaly associated with this phenomenon of intra-industry information transfers by showing that the stock price movements of late announcers in response to earnings reported by early announcers are negatively related to subsequent price responses of late announcers to their own earnings reports. Apparently, the stock market overestimates the intra-industry implications of early announcers' earnings for late announcers' earnings, and that overestimation is corrected when late announcers disclose their earnings.

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