Abstract

http://ssrn.com/abstract=1446929
 
 

References (45)



 
 

Citations (15)



 


 



Expected Earnings and the Post-Earnings-Announcement Drift


Yaniv Konchitchki


University of California, Berkeley - Haas School of Business

Xiaoxia Lou


University of Delaware - Alfred Lerner College of Business and Economics

Gil Sadka


University of Texas at Dallas

Ronnie Sadka


Boston College - Carroll School of Management

February 1, 2013


Abstract:     
This paper studies competing explanations for the Post-Earnings-Announcement Drift (PEAD) anomaly. We decompose analyst-forecast error into a component predictable by prior stock returns and a surprise component, with the predictable component interpreted as expected earnings. Under the investment-based asset-pricing explanation for PEAD, both components are related to future earnings and thus to expected returns. In contrast, under the investor underreaction explanation, PEAD is driven only by the surprise component. We find that purging the expected earnings component reduces PEAD profits by up to 54%, which suggests that a substantial part of the PEAD is consistent with investment-based asset pricing.

Number of Pages in PDF File: 43

Keywords: Analyst forecasts, asset pricing, predictability, post-earnings-announcement drift

JEL Classification: G12, G14, M41

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Date posted: August 11, 2009 ; Last revised: February 5, 2013

Suggested Citation

Konchitchki, Yaniv and Lou, Xiaoxia and Sadka, Gil and Sadka, Ronnie, Expected Earnings and the Post-Earnings-Announcement Drift (February 1, 2013). Available at SSRN: http://ssrn.com/abstract=1446929 or http://dx.doi.org/10.2139/ssrn.1446929

Contact Information

Yaniv Konchitchki
University of California, Berkeley - Haas School of Business ( email )
545 Student Services Building
Berkeley, CA 94720
United States
HOME PAGE: http://sites.google.com/site/ykonchit
Xiaoxia Lou
University of Delaware - Alfred Lerner College of Business and Economics ( email )
Newark, DE 19716
United States
Gil Sadka (Contact Author)
University of Texas at Dallas ( email )
2601 North Floyd Road
Richardson, TX 75083
United States
Ronnie Sadka
Boston College - Carroll School of Management ( email )
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
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