On the Efficiency of Intra-Industry Information Transfers: The Demise of the Overreaction Anomaly

We revisit the stock market anomaly documented by Thomas and Zhang (2008; Overreaction to intra-industry information transfers? Journal of Accounting Research 46: 909–940) and show that the apparent mispricing of information transfers appears to have decayed over time. Utilizing recent advancements in market microstructure research, we attribute the demise of this anomaly primarily to changes in market efficiency. As market efficiency improves over time, we show that stock prices of late announcers in response to earnings reported by early announcers in the same industry are significantly related to subsequent price responses of late announcers to their own earnings reports only in the earlier time periods. Our results indicate that pricing efficiency of intra-industry information transfers has increased in the recent years of markedly higher trading activity.