Two Essays on Investor Distraction

In theory, all relevant information is incorporated in stock prices timely and completely and therefore prices respond related news quickly in efficient financial markets. In today\u27s information age, technological advances provide investors with fast access to a vast number of information resources. One can argue that these advances can help market efficiency due to easy and quick access to relevant information. On the other hand, these technological advances not only facilitate availability of relevant information but also facilitate availability of all types of information--both relevant and irrelevant information signals. In essence, one can argue that there is (over)exposure to information which may come with a cost in the form of distraction and limited attention to relevant information. After considering these previous points, this study sheds more light on investor distraction and its impact on stock prices in two essays. My first essay introduces a new type of investor distraction, which arises from the discrepancy between investors\u27 mood state and the content of the firm news. My second essay shows the importance of culture to explain investors\u27 information processing .Moreover; the findings of my second essay are consistent with an investor distraction effect caused by cultural factors which are assumed as irrelevant factors in investors\u27 information environment. In my first essay titled Overexposure to Unrelated News and Investor Distraction: Earnings News and Big Sports Games , I use mood-generating events - proxied by big sports games -that contain no information on firm fundamentals but occur concurrently with earnings vi announcements to test the hypothesis that investors\u27 attention shifts away from financial news that is incongruent with investors\u27 mood states, thereby leading to underreaction. I empirically confirm the existence of mood-conflicting distraction. I find stronger post-earnings announcement drift and delayed response ratio, and weaker immediate volume reaction, when the earnings announcing firm\u27s local investors\u27 sports mood is inconsistent with the earnings news\u27 content (good vs. bad). This effect strengthens with firm\u27s proximity to the location of the mood source. In my secon essay titled Post-Earnings Announcement and Religious Holidays , I show the role of culture, proxied by religion, in financial information processing and the impact of culture on financial outcomes through investor inattention. I examine whether and how the religious holiday calendar affects investors\u27 information processing by investigating price reactions to U.S. firms\u27 earnings announcements that occur during Easter week. I find different patterns for short-term and delayed responses to Easter week earnings surprises. Moreover, there is a stronger immediate (delayed) reaction to good (bad) news, primarily found in less religious, predominantly Protestant areas. The results are consistent with a religion-induced investor distraction effect. The findings also show the role of religious characteristics in firms\u27 information environment and the locality of stock prices