Investors' Information Choices and Trading Activities Around Earnings Announcements

With the still presence of underreaction to earnings announcements, the Taiwan stock market provides an ideal setting to examine the market response to the announced earnings news. This paper extends the rationale of investors’ differential sophistication and attention allocation by estimating unobservable private information and controlling several firm characteristics. The empirical results on the quarterly earnings announcements show that foreign institutional investors are net sellers, whereas mutual funds act as net buyers in short-term window horizons. On the other hand, broker-dealers act as net sellers in the medium-term window horizons, while retail investors are net sellers in both short-term and medium-term window horizons. Among the four investor types, foreign institutional, mutual fund, and retail investors have discernible attitudes toward the two extreme earnings surprises. The delayed responses to earnings announcements on Fridays are found to be a function of sample selection bias. These findings suggest investors’ information choices and their effects on trading activities around quarterly earnings announcements