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Individual Investor Trading and Return Patterns around Earnings Announcements






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    • Ron Kaniel is from the Simon Graduate School of Business, University of Rochester, and the Center for Economic Policy Research. Shuming Liu is from the College of Business, San Francisco State University. Gideon Saar is from the Johnson Graduate School of Management, Cornell University. Sheridan Titman is from the McCombs School of Business, University of Texas at Austin. Acting Editor: Burton Hollifield. We are grateful for comments to Warren Bailey, Soeren Hvidkjaer, an anonymous referee, and seminar (or conference) participants at BI Norwegian School of Management, Columbia University, Copenhagen Business School, Cornell University, Rutgers University, University of Pittsburgh, University of Rochester, University of Virginia, the American Finance Association meetings, the Rodney White Conference at Wharton, and the Western Finance Association meetings. This research began while Saar was on leave from New York University and held the position of Visiting Research Economist at the New York Stock Exchange. The opinions expressed in this paper do not necessarily reflect those of the members or directors of the NYSE.


This paper provides evidence of informed trading by individual investors around earnings announcements using a unique data set of NYSE stocks. We show that intense aggregate individual investor buying (selling) predicts large positive (negative) abnormal returns on and after earnings announcement dates. We decompose abnormal returns following the event into information and liquidity provision components, and show that about half of the returns can be attributed to private information. We also find that individuals trade in both return-contrarian and news-contrarian manners after earnings announcements. The latter behavior has the potential to slow the adjustment of prices to earnings news.