Does Financial Statement Comparability Reduce Differences in Sentiment‐induced Investor Trading Behaviour?
Published online on June 17, 2025
Abstract
["Abacus, EarlyView. ", "\nThis study examines whether comparable financial information can mitigate differences between individual and institutional investors’ trading behaviour, particularly behaviour that is shaped by investor sentiment. The results indicate that the higher the comparability, the smaller the gap in trading behaviour driven by investor sentiment between institutional and individual investors. In particular, the tendency of individual investors to purchase stocks associated with high investor sentiment is mitigated by comparable financial information. However, the study also reveals that comparability does not significantly affect institutional investors’ investment decisions. Furthermore, the effect of comparability in minimizing differences in trading behaviours resulting from investor sentiment is more pronounced for firms that are difficult to evaluate (such as young, volatile, non‐dividend‐paying firms with extreme market‐to‐book ratios, and those with limited analyst coverage) as well as firms operating in less competitive industries. Overall, these findings collectively indicate that comparability benefits investors and highlights which types of investors stand to gain from it.\n"]