Firm Heterogeneity and Investor Inattention to Friday Earnings Announcements

DellaVigna and Pollet (2009) argue that the documented underreaction to Friday earnings announcements can be attributed to investors’ inattention on Friday relative to other days of the week. Using four approaches, we examine the impact of firm heterogeneity on the immediate reaction and drift for Friday earnings announcements. First, we identify that Friday underreaction is generated only by announcements made after trading hours on Friday and find that firms that have made a Friday evening announcement experience a reduced reaction to earnings news announced not only on Friday but also on non-Friday weekdays. Second, we match Friday evening announcements to other weekday-evening announcements based on firm characteristics, such as market capitalization, institutional holdings, and analyst following. There is no difference in the response to earnings announcements between the two groups. Third, we find that firm fixed effects eliminate the Friday effect. Fourth, the market response to Friday evening earnings announcements is not different from the market response to earnings announcements of the very same firms on other evenings of the week. Finally, we find that the smaller trading volume found by DellaVigna and Pollet for Friday announcements is not earnings-related. We conclude that while inattention may explain certain patterns in the behavior of investors and prices in financial markets, it is not the reason for the reduced reaction to earnings announced on Friday.

• Download Michaely's paper

This event is an Erasmus Finance Seminar. The Erasmus Finance Seminar series brings prominent researchers in Finance from all over the world to Rotterdam.