TY - JOUR
T1 - Total attention
T2 - The effect of macroeconomic news on market reaction to earnings news
AU - Chen, Linda H.
AU - Jiang, George J.
AU - Zhu, Kevin X.
N1 - Publisher Copyright:
© 2018 Elsevier B.V.
PY - 2018/12
Y1 - 2018/12
N2 - We show evidence that consistent with category-learning behavior, investors allocate more attention to macroeconomic news than to firm-specific news, such as earnings announcements. Despite the distracting effect of macroeconomic news on investor attention, we find that earnings announcements with concurrent macroeconomic news announcements actually have significantly stronger immediate market response and weaker post-earnings announcement drift. We hypothesize that the combined total attention to macroeconomic news and earnings announcements helps investors understand both the systematic and firm-specific components of earnings surprises. Consistent with the hypothesis, our results show that the macroeconomic news effect is mainly driven by firms with high exposure to macroeconomic news. Moreover, we show that the effect is stronger when macroeconomic news contains more information and for firms with greater information uncertainty. Finally, we provide evidence that macroeconomic news helps reduce stock return uncertainty and enhance stock price efficiency.
AB - We show evidence that consistent with category-learning behavior, investors allocate more attention to macroeconomic news than to firm-specific news, such as earnings announcements. Despite the distracting effect of macroeconomic news on investor attention, we find that earnings announcements with concurrent macroeconomic news announcements actually have significantly stronger immediate market response and weaker post-earnings announcement drift. We hypothesize that the combined total attention to macroeconomic news and earnings announcements helps investors understand both the systematic and firm-specific components of earnings surprises. Consistent with the hypothesis, our results show that the macroeconomic news effect is mainly driven by firms with high exposure to macroeconomic news. Moreover, we show that the effect is stronger when macroeconomic news contains more information and for firms with greater information uncertainty. Finally, we provide evidence that macroeconomic news helps reduce stock return uncertainty and enhance stock price efficiency.
KW - Category-learning behavior
KW - Earnings announcement
KW - Limited investor attention
KW - Macroeconomic news announcement
KW - Market reaction
UR - http://www.scopus.com/inward/record.url?scp=85055033947&partnerID=8YFLogxK
U2 - 10.1016/j.jbankfin.2018.10.004
DO - 10.1016/j.jbankfin.2018.10.004
M3 - Article
AN - SCOPUS:85055033947
SN - 0378-4266
VL - 97
SP - 142
EP - 156
JO - Journal of Banking and Finance
JF - Journal of Banking and Finance
ER -