Do Heterogeneous Beliefs Matter to Post‐announcement Informed Trading?. (21st November 2022)

• Record Type: Journal Article
• Authors: Chen, Tao; Karathanasopoulos, Andreas
• Is Part Of: Abacus. Volume 58:Number 4(2022)
• Page Start: 714
• Page End: 741
• Publication Date: 2022-11-21
• Subjects: Heterogeneous beliefs -- Market liquidity -- Post‐announcement informed trading; Accounting -- Periodicals; Finance -- Periodicals; 657.05
• DOI: 10.1111/abac.12272
• Languages: English
• ISSNs: 0001-3072

Abstract

Abstract : We examine whether heterogeneous beliefs among investors affect post‐announcement informed trading. Using a global transaction‐level dataset, we find that post‐announcement informed trading increases with heterogeneous beliefs developed at the event window. Such an inference survives from several robustness checks. As additional analyses indicate, shrinking liquidity at the earnings announcement serves as a transmission mechanism to rationalize the documented association. Eventually, we reveal that informed trading driven by belief heterogeneity plays a dominant role in explaining post‐announcement returns.