| A large amount of prior research that aim at understanding how individual investors respond to accounting disclosures uses transaction sizes to differentiate between small/individual and large/institutional investors. Recent studies have found that certain institutions are heavily involved in small size transactions. The analysis of individual investor trading based on transaction sizes erroneously draws inferences related to the small size transactions of institutional investors instead of transactions of individual investors. I re-investigate several fundamental issues using a comprehensive dataset of individual investor trading on the NYSE. First, I find that for individual investors there is a high concentration of trading around the earnings announcements and that the concentration is significantly higher than what is seen for the overall market. This finding is inconsistent with Cready [Journal of Accounting Research, 1-27 (1988)] which interprets the increase of the mean transaction size during the announcement periods as evidence that large/institutional investors find earnings information relatively more valuable than small/individual investors. Second, I show that individual investors' buying is more concentrated than their selling which supports Lee [Journal of Accounting and Economics, 15(2-3), 265-302 (1992)]'s finding that individual investors are particularly prone to buying during the earnings announcement periods. Third, I do not find a significant positive association between individual investor abnormal trading and the magnitude of seasonal random-walk forecast errors during the announcement periods. This is inconsistent with Bhattacharya [The Accounting Review, 76(2), 221-244, (2001)] which shows a positive association between abnormal small size transactions and the magnitude of random-walk forecast errors, and interprets the finding as evidence that individual investors rely on seasonal random-walk model to form earnings expectations. Fourth, my analysis finds no evidence of the negative relation between 10K complexity and individual investor trading activity documented in Miller [ The Accounting Review, 85(6), 2107-2143, (2010)]. |
