December doldrums, investor distraction, and the stock market reaction to unscheduled news events

Abstract

We examine how investor distraction during the December holiday season impacts the stock market’s reaction to salient firm-specific news. We find that both retail and institutional investor attention is significantly lower in December. Importantly, only unscheduled credit rating downgrades and 8-K filings experience lower investor attention in December; we find no equivalent effect for pre-scheduled earnings announcements. Consistently, we document significantly weaker market responses in December toward unscheduled firm news only. Firm prominence mitigates this December distraction effect. Our results highlight how investor distraction in December can lead to a muted market reaction to unscheduled, but salient, firm-specific news.