Heterogeneous investor attention and post earnings announcement drift: Evidence from China

Abstract

We investigate the impacts of retail and nonretail investor attention on post earnings announcement drift (PEAD) in China. Prior studies mainly posited that investor attention helps to interpret earnings news. However, we suggest that retail (nonretail) investor attention is positively (negatively) related with PEAD from 2011 to 2018 when employing the abnormal search index and abnormal turnover residual as proxies for retail and nonretail investor attention. This is robust when using alternative methodology andmeasures and introducing instrumental variables. Additional analyses prove that this is because retail (nonretail) attention is positively (negatively) associated with firms’ information uncertainty, illiquidity and leads to irrational (rational) behavior. Moreover, the influence of retail investor attention on PEAD is stronger as the stock price approximates its 52 week high. These findings emphasize the significance of investor sophistication when studying the function of investor attention in the financial market.