Do Institutional Investors Exploit the Post-earnings Announcement Drift?
Bin Ke
Nanyang Technological University
Santhosh Ramalingegowda
University of Georgia - Terry College of Business
February 2004
Abstract:
We provide evidence that transient institutional investors (i.e., those actively trading to maximize short term profits) trade to exploit the post-earnings announcement drift (PEAD). We estimate that transient institutions' arbitrage generates an abnormal return of 5.1 percent (or 22 percent annualized) after transaction costs. In addition, their arbitrage trades accelerate the speed that stock prices reflect the implications of current earnings for future earnings. However, transient institutions trade less aggressively to exploit PEAD in firms with high transaction costs. Our results contribute to understanding the role of transient institutional investors in explaining the persistence of PEAD.
Number of Pages in PDF File: 47
JEL Classification: G12, G14, M41
working papers series
Suggested Citation
Ke, Bin and Ramalingegowda, Santhosh, Do Institutional Investors Exploit the Post-earnings Announcement Drift? (February 2004). Available at SSRN: http://ssrn.com/abstract=446520 or http://dx.doi.org/10.2139/ssrn.446520
