Is Information Uncertainty Positively or Negatively Associated with Post-Earnings-Announcement Drift?
60 Pages Posted: 13 Sep 2007
Date Written: August 31, 2007
This study reconciles ostensibly conflicting evidence from prior research about the association between information uncertainty and post-earnings-announcement drift (PEAD). While earlier studies on PEAD imply a positive association between PEAD and future earnings information uncertainty contained in a current earnings announcement, studies using analyst earnings forecast dispersion report a negative association between information uncertainty and PEAD. Although the authors of those studies argue that the negative association is consistent with behavioral finance theories, it is not consistent with the notion that more reliable information improves market efficiency. I argue that the negative association is due to earnings forecast congestion immediately after earnings announcements. Introducing an analyst-based proxy that controls for the forecast congestion, I find a positive association in line with traditional views.
Keywords: Information Uncertainty, Post-Earnings-Announcement Drift, PEAD, Analyst Earnings Forecast
JEL Classification: D82, G12, G14, G29, M41, M43
Suggested Citation: Suggested Citation