| This paper examines differential investor trading response when earnings are revised in SEC Form 10-K/Q reports from the preliminary earnings announcements. Prior research shows that investors have different trading behavior based on divergent prior expectations, differential interpretations of public signals, and the use of different sets of information. I find that the abnormal trading activities of large, sophisticated investors around the SEC filing dates are positively associated with the earnings revisions in Form 10-K/Q reports, especially when earnings are revised downward and the recurring items of earnings are revised. In contrast, I do not find any association between the small, less-sophisticated investors' abnormal trading and earnings revisions. The evidence supports the notion that different groups of investors use different set of information for trading decision and therefore lead to differential trading response. |
