The wisdom of crowds and the market's response to earnings news: Evidence using the geographic dispersion of investors

• 成果类型: Article
• 署名作者: V. Chen, Jason
• 署名单位: University of Illinois System; University of Illinois Chicago; University of Illinois Chicago Hospital
• 刊物名称: JOURNAL OF ACCOUNTING & ECONOMICS
• ISSN/ISSBN: 0165-4101
• DOI: 10.1016/j.jacceco.2022.101567
• 发表日期: 2023
• 关键词: Price discovery; INFORMATION; returns; volume; announcements; dissemination; underreaction; INVESTMENT; EFFICIENCY

摘要

The wisdom of crowds suggests that groups with more diversely informed individuals reach more informed decisions because their members are collectively more knowledgeable. I study this idea in the context of the market's response to earnings announcements by examining how information diversity across investors affects the efficiency of the price response to earnings news. I measure investors' information diversity based on their geographic dispersion, which I estimate using the locations of the requests for firms' filings to EDGAR. Greater geographic dispersion is associated with greater trading during the announcement period; this supports the use of geographic dispersion as a measure of information diversity. Consistent with my predictions, the price response to a firm's earnings news is more efficient when the firm's investors have greater information diversity. In further analysis, I find that the initial heightened trading for firms with more diversely informed investors subsides quickly after the announcement period. (c) 2022 Elsevier B.V. All rights reserved.