Is Information Uncertainty Positively or Negatively Associated with Post-Earnings-Announcement Drift?

60 Pages Posted: 13 Sep 2007

See all articles by Joonho Lee

Joonho Lee

California State Polytechnic University, Pomona - Accounting Department

Date Written: August 31, 2007

Abstract

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

Lee, Joonho, Is Information Uncertainty Positively or Negatively Associated with Post-Earnings-Announcement Drift? (August 31, 2007). Available at SSRN: https://ssrn.com/abstract=1014022 or http://dx.doi.org/10.2139/ssrn.1014022

Joonho Lee (Contact Author)

California State Polytechnic University, Pomona - Accounting Department ( email )

College of Business Administration
Pomona, CA 91768
United States
9098694597 (Phone)

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