Information demand density matters: Evidence from the post-earnings announcement drift

We show that information demand density (IDD), proxied by abnormal online search volume divided by the magnitude of information asymmetry, has material impacts on price efficiency. First, IDD reduces the post -earnings announcement drift (PEAD) by improving the informational efficiency. Second, IDD is higher for nonlocal investors, which could also reduce the magnitude of PEAD. Third, the impact of IDD is more pronounced for the non-SOEs firms, firms with stronger information environment, higher media coverage, and headquartered in big cities. These results are robust to alternative measurements of IDD and regression windows.

Automated summary

We find that information demand density (IDD), represented by abnormal online search volume divided by information asymmetry, has significant impacts on price efficiency. Firstly, IDD reduces post-earnings announcement drift (PEAD) by improving informational efficiency. Secondly, IDD is higher for nonlocal investors, which also decreases the magnitude of PEAD. Lastly, the impact of IDD is more pronounced for non-SOEs firms, firms with stronger information environment, higher media coverage, and headquartered in big cities. These results hold true even with alternative measurements of IDD and regression windows.