Religious holidays, investor distraction, and earnings announcement effects

• Published in: Journal of banking & finance Vol. 47; pp. 102 - 117
• Main Authors: Pantzalis, Christos, Ucar, Erdem
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01-10-2014; Elsevier Sequoia S.A
• Subjects: Earnings; Earnings announcements; Easter; Enterprises; Holidays; Information; Information processing; Investment policy; Investor distraction; Investors; Post-earnings announcement drift; Religion; Religious holidays; Stock prices; Studies; U.S.A; United States > US; Religion; Investor distraction; G14; Post-earnings announcement drift; G19
• ISSN: 0378-4266; 1872-6372
• DOI: 10.1016/j.jbankfin.2014.05.020

We examine price reactions to U.S. firms’ earnings announcements during Easter week in order to analyze whether and how the religious holiday calendar impacts investors’ information processing. We find that there is an asymmetric pattern of immediate and delayed responses to earnings surprises experienced during Easter, entailing similar immediate reactions to both good and bad news and a stronger delayed response to bad news. Moreover, local religious characteristics affect investor’s response to firm news. The results are consistent with a religion-induced distraction effect on investors’ information processing ability. We also show that this effect can form the basis for a profitable trading strategy. The findings highlight the importance of religion for firms’ information environment and for the local component of stock prices.