NETWORK ATTENTION AND EARNINGS DRIFT

Chen Chunying,Hsieh Chiunghua

doi:10.32479/ijefi.7975

Abstract

For the first time, this article uses the search volume index (SVI) of Google Trends to measure investor attention and observe stock market. Empirical results show that the higher the attention to individual stocks, the lower the cumulative abnormal returns. If stocks had positive (negative) abnormal returns, the cumulative abnormal returns would decline, thereby weakening (strengthening) earnings drift. Only the stocks with earnings that weren't as good as expected encountered an increase in cumulative abnormal returns. Regarding stocks that attract investor attention, having a positive (negative) earnings surprise brings more positive (negative) cumulative abnormal returns and strengthens (weakens) earnings drift.Keywords: Earnings drift; search volume index; investor attentionJEL Classifications: G1, J3DOI: https://doi.org/10.32479/ijefi.7975

Highlights

The difference between a company’s actual and expected earnings is referred to as earnings surprise
Attention was measured using Google Trends provided by Google, and the remaining variables were sourced from the Taiwan Economic Journal (TEJ) database
In the correlation coefficient analysis, it is initially apparent that the cumulative abnormal returns are significantly positive and that an earnings drift has occurred

Summary

Introduction

The difference between a company’s actual and expected earnings is referred to as earnings surprise. When a company makes a postearnings announcement, earnings surprise continues to accumulate abnormal returns for a period of time. This is a phenomenon known as earnings drift. Past literature has suggested that the higher the earnings surprise, the more likely it attracts investor attention. When investor attention is high, it raises investment costs, and positive cumulative abnormal returns are less likely to occur, thereby weakening earnings drift. The Internet has matured, and the public relies heavily on it. The use of communication software has rendered it possible to buy and sell stocks online; the attention of general investors to the financial aspects of a company on the Internet may affect earnings drift in the stock market. This study attempts to explore whether network attention brings about significant earnings drift

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