Abstract
We examine whether heterogeneous beliefs among investors affect post-announcement informed trading. Using a global transaction-level dataset, we find that post-announcement informed trading increases with heterogeneous beliefs developed at the event window. Such an inference survives from several robustness checks. As additional analyses indicate, shrinking liquidity at the earnings announcement serves as a transmission mechanism to rationalize the documented association. Eventually, we reveal that informed trading driven by belief heterogeneity plays a dominant role in explaining post-announcement returns.
| Original language | English |
|---|---|
| Pages (from-to) | 714-741 |
| Number of pages | 28 |
| Journal | Abacus |
| Volume | 58 |
| Issue number | 4 |
| Early online date | 21 Nov 2022 |
| DOIs | |
| Publication status | Published - Dec 2022 |
| Externally published | Yes |
Bibliographical note
Publisher Copyright:© 2022 Accounting Foundation, The University of Sydney.
Funding
Chen acknowledges financial support from a University of Macau Multi‐Year Research Grant (MYRG2020‐00042‐FBA, MYRG2022‐00008‐FBA).
Keywords
- Heterogeneous beliefs
- Market liquidity
- Post-announcement informed trading