The High-Volume Return Premium and Post-Earnings Announcement Drift
Yale School of Management
New York University
Richard R. Mendenhall
University of Notre Dame - Department of Finance
This paper investigates the relationship among trading volume around earnings announcements, earnings forecast errors, and subsequent returns. Prior research finds a positive relation between earnings announcement period trading volume and subsequent returns (the high-volume return premium) and between earnings forecast errors and subsequent returns (post-earnings announcement drift). We find that for a sample of firms followed by analysts these effects are complementary, i.e., each retains incremental ability to predict post-earnings announcement returns. Prior research provides two competing explanations for the high-volume return premium: changes in firm visibility versus differences in risk. We provide evidence that seems to rule out risk-based explanations while supporting the visibility hypothesis.
Number of Pages in PDF File: 43
Keywords: Market efficiency, Trading volume, High-volume return premium, Post-earnings announcement drift
JEL Classification: G14, G29, M41working papers series
Date posted: April 18, 2008
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