This study examined why stocks that experience high abnormal trading volume
around earnings announcements earn high returns. The high returns of high-volume
stocks appear to be associated with selling pressure that is independent of
fundamentals and that comes from a subset of investors who base their selling
decisions on the magnitude of unrealized capital gains or losses. Supplementary
evidence based on account-level data from a U.S. brokerage firm suggests extra
selling pressure for stocks with large capital losses around earnings
announcements. These patterns also suggest that the conventional interpretation
of the disposition effect may not hold for stocks with large, unrealized capital
losses around earnings announcements.