Which Investor Corrects Mispricing Around Earnings Announcements?

Authors

Jihoon Goh, Pusan National University
Byoung-Hyun Jeon, Marquette UniversityFollow

Document Type

Article

Publication Date

6-2025

Publisher

Elsevier

Source Publication

Pacific-Basin Finance Journal (PBFJ)

Source ISSN

0927-538X

Original Item ID

DOI: 10.1016/j.pacfin.2025.102745

Abstract

Using daily investor group-level trading data, we investigate whose trades align with anomalies and contribute to the correction of mispricing around earnings announcements. Around earnings announcements, institutions sell overpriced stocks four times more than they do on non-earnings days. Although retail investors purchase overpriced stocks on non-earnings days, such a tendency disappears around the earnings announcements. The overpricing of stocks in the short leg of anomalies is resolved around earnings announcement only if these stocks were sold by institutions, highlighting institutions' role in revealing mispricing. The institutional trades to correct overpricing are stronger when stocks are easier to sell short. On the contrary, during the short selling ban period, there is no evidence that institutions sell overpriced stocks around earnings announcements, reaffirming the role of short selling constraints in hindering mispricing correction.

Comments

Accepted version. Pacific-Basin Finance Journal (PBFJ), Vol. 91 (June 2025). DOI. © 2025 Elsevier. Used with permission.

Recommended Citation

Goh, Jihoon and Jeon, Byoung-Hyun, "Which Investor Corrects Mispricing Around Earnings Announcements?" (2025). Finance Faculty Research and Publications. 166.
https://epublications.marquette.edu/fin_fac/166