Can individual investors identify economic links? : evidence from initial quarterly earnings announcements within industries

We examine whether individual investors in China have the ability to acquire and process the information of industry peers. We exploit the initial earnings announcement within each industry-quarter during 2015-2017 and use the frequency of investors’ daily discussions on the Xue Qiu platform to capture their information acquisition activities. We find that non-announcing firms’ investors exhibit a significant increase in their discussion frequency around the initial earnings announcement within an industry. These increased discussions facilitate the information transfer from the announcing firm to its non-announcing peers, manifested by the latter’s reactions in share prices and trading volume to the former’s unexpected earnings. In the cross-section, investors’ acquisition and processing of peer information are more pronounced when non-announcing firms exhibit a worse information environment or a stronger economic link with the announcing firm. Collectively, individual investors in China exhibit some rationality in acquiring and utilizing information of economically linked firms.