Abstract

http://ssrn.com/abstract=972758
 
 

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Citations (62)



 


 



Liquidity and the Post-Earnings-Announcement Drift


Tarun Chordia


Emory University - Department of Finance

Ronnie Sadka


Boston College - Carroll School of Management

Amit Goyal


University of Lausanne; Swiss Finance Institute

Gil Sadka


University of Texas at Dallas

Lakshmanan Shivakumar


London Business School

March 8, 2007

AFA 2008 New Orleans Meetings Paper

Abstract:     
The post-earnings-announcement-drift is a long standing anomaly that is in conflict with market efficiency. This paper documents that the post-earnings-announcement drift occurs mainly in the highly illiquid stocks. A trading strategy that goes long the high earnings surprise stocks and short the low earnings surprise stocks provides a value-weighted return of 0.14% in the most liquid stocks and 1.60% per month in the most illiquid stocks. The illiquid stocks have high trading costs and market impact costs. Using a multitude of estimates we find that transaction costs account for anywhere from 63% to 100% of the paper profits from the long-short strategy designed to exploit the earnings momentum anomaly. This paper provides support for the argument that transactions costs could be the source of the drift.

Number of Pages in PDF File: 35

Keywords: G11, G12, C11

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Date posted: March 20, 2007 ; Last revised: August 24, 2011

Suggested Citation

Chordia, Tarun and Sadka, Ronnie and Goyal, Amit and Sadka, Gil and Shivakumar, Lakshmanan, Liquidity and the Post-Earnings-Announcement Drift (March 8, 2007). AFA 2008 New Orleans Meetings Paper. Available at SSRN: http://ssrn.com/abstract=972758 or http://dx.doi.org/10.2139/ssrn.972758

Contact Information

Tarun Chordia (Contact Author)
Emory University - Department of Finance ( email )
Atlanta, GA 30322-2710
United States
404-727-1620 (Phone)
404-727-5238 (Fax)
Ronnie Sadka
Boston College - Carroll School of Management ( email )
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
Amit Goyal
University of Lausanne ( email )
Lausanne, 1015
Switzerland
Swiss Finance Institute ( email )
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland
Gil Sadka
University of Texas at Dallas ( email )
2601 North Floyd Road
Richardson, TX 75083
United States
Lakshmanan Shivakumar
London Business School ( email )
Regent's Park
London, NW1 4SA
United Kingdom
+44 20 7000 8115 (Phone)
+44 20 7000 8101 (Fax)
HOME PAGE: http://faculty.london.edu/lshivakumar/
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