The Role of Aggregate News Sentiment in Shaping Investor Attention around Earnings Announcements

Sammanfattning

Traditional asset-pricing models assume investors incorporate new information without constraint, yet a substantial behavioral literature establishes that cognitive capacity is finite and distributed across competing stimuli. This study investigates the emotional tone of the aggregate news environment as a potential distraction mechanism, testing its capacity to diminish investor attention to earnings announcements and undermine price efficiency in U.S. equity markets. Replicating and extending an established exogeneous distraction framework using S&P 500 firm-quarter observations from 1999 to 2025, a text-based daily news sentiment index is introduced as a novel distraction proxy and benchmarked against a news pressure measure in the same controlled empirical setting. Two-way fixed-effects panel regressions reveal that, unlike episodic news volume, aggregate news sentiment produces no systematic dampening of abnormal trading volume over 1999 to 2015, with price reactions remaining unaffected in both cases. In the post-2015 period, sentiment associates positively with announcement-period trading, yet leaves price efficiency unaffected, an effect more likely attributed to structural changes in the contemporary market environment than to behavioral inattention. The findings suggest that distraction-based attention failures require acute cognitive interruption as a prerequisite, one that a gradual, persistent sentiment measure does not satisfy.