Cryptocurrency Disruption and Investor Reaction to Earnings Announcements

• In Event: Investor Protection and Decision-Making

Abstract

In this paper, we study the relationship between attention to cryptocurrency and investor reactions to earnings news. In recent years, the capital market witnessed cryptocurrency mania. Because investors have limited attention, we hypothesize that attention to cryptocurrency distracts investor attention from earnings news. Using past ten-day cumulative and maximum cumulative returns as measures of cryptocurrency distraction, we find that higher attention to cryptocurrency around earnings announcements is associated with weaker return response to earnings surprises, followed by stronger post-earnings-announcement drift. We also find that the distraction effect depends on the stock market condition: the effect is more pronounced when the past equity market volatility is higher, and when the past idiosyncratic stock return is lower. Further, we provide evidence that cryptocurrency distraction is negatively associated with investor attention, measured by abnormal volume and Google searches. Additionally, we document that cryptocurrency distracts both retail and institutional investors. Overall, our study provides evidence that cryptocurrency, a class of assets with no intrinsic value, disrupts information processing in the equity market.

Authors

• Minjae Kim, University of Minnesota

• Hui (Eva) Liang, University of Texas at Tyler

• Xinyuan Shao, University of Minnesota

• Ashish K. Ochani, Cornell University