Investor distraction during the Swedish summer and stock market under-reaction to companies’ earnings releases
Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
This paper investigates whether greater investor distraction on the Swedish stock market during the summer months of June, July and August leads to a more pronounced post earnings announcement drift (PEAD) effect, during the ten year period between 2000 and 2009. PEAD is an anomaly whereby the information contained in earnings announcements is not immediately or completely incorporated into stock prices, in the cases where the announcement contains an ‘earnings surprise’. The methodology involves using the standardised unexpected earnings (SUE) metric to measure the level of ‘earnings surprise’ and a buy and hold abnormal returns (BHAR) trading strategy to measure return. The study tests and confirms the existence of greater investor distraction during summer months on the Swedish market. For a holding period of 12 months, a BHAR trading strategy generates a greater abnormal return for summer months (11.3%) compared with the abnormal return for non-summer months (10.5%). These results are also interesting in a broader context, as they confirm the existence of the PEAD effect, one of the strongest counter-arguments to the efficient markets hypothesis (EMH); the foundation of many financial models used for stock market valuation. This is because, according to the EMH, in an efficient market it should not be possible to generate abnormal returns based on available information. However, it may be noted that these results do not take into account transaction costs. This means that while it can be demonstrated that there is greater investor distraction during the Swedish summer, in order to implement a successful trading strategy based on this finding, further testing would be required. Therefore, based on the findings of this paper, a number of areas for future research have been identified.
Place, publisher, year, edition, pages
2011. , 48 p.
investor distraction, investor inattention, Post Earnings Announcement Drift, PEAD, under-reaction, earnings surprise, SUE, summer, seasonal effects, buy and hold abnormal returns, abnormal returns, BHAR
IdentifiersURN: urn:nbn:se:uu:diva-155747OAI: oai:DiVA.org:uu-155747DiVA: diva2:427864
UppsokSocial and Behavioural Science, Law