Abstract
We explore if sleep deprivation affects how investors react to relevant news. Using the transition to Daylight Saving Time (DST) in the spring as a disruption to sleeping patterns, we show that investors underreact to a firm’s earnings surprise in the days after the transition to DST. Further, an earnings surprise in the days after the transition to DST is associated with a positive drift in the post-announcement period. Our findings are consistent with sleep-deprived investors mispricing and subsequently reassessing relevant information. Overall, our results highlight the importance of investors' cognitive ability for efficient market pricing.
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