Accounting Seminar（2014-02）

Topic 1：Visibility Bias in the Transmission of Consumption Norms and Undersaving

Speaker: David Hirshleifer,University of California, Irvine

Topic 2：Headline Salience and Over-and Underreactions to Earnings

Speaker: Siew Hong Teoh, University of California, Irvine

Time:: Monday,17 March,09:00-11:15am

Location:Room 109, Guanghua Building 2

Organizer:Department of Accounting,Finance,MPAcc GSM, PKU

Abstract1：

We study the spread of social norms for time preferences, and the effect of the transmission process on equilibrium consumption and interest rates. In the model, consumption is more salient than non-consumption. Owing to visibility bias and the availability heuristic, people infer that low saving is normative and increase their own discount rates accordingly. This effect is self-reinforcing at the societal level, resulting in overconsumption and high interest rates. In contrast with Veblen effects, which imply greater overconsumption when there is greater information asymmetry about the wealth of others (as occurs when wealth dispersion is high), in our setting greater information asymmetry dilutes the inference from high observed consumption that the discount rate of others is high. In consequence, equilibrium consumption is lower, the opposite prediction.

Abstract 2：

If investors have limited attention, then greater salience of earnings news implies a stronger announcement date return reaction, and a weaker post-earnings announcement drift (PEAD) or reversal (PEAR). Using a new measure,SALIENCE, calculated as the number of quantitative items in an earnings press release headline, we find strong evidence consistent with salience effects. HigherSALIENCEfirms are more likely to be profit firms, have higher current earnings and operating cash flows, lower earnings persistence, and greater post-announcement insider selling. HigherSALIENCEis associated with stronger announcement reaction and subsequent PEAR. The results are robust to inclusion of an extended set of control variables. The findings are consistent with investor limited attention, and managers opportunistically headlining positive financial information in the earnings press release to incite overoptimism in investors with limited attention.

Your participation is warmly welcomed!