43 Pages Posted: 18 Apr 2008
Date Written: April 2008
This paper investigates the relationship among trading volume around earnings announcements, earnings forecast errors, and subsequent returns. Prior research finds a positive relation between earnings announcement period trading volume and subsequent returns (the high-volume return premium) and between earnings forecast errors and subsequent returns (post-earnings announcement drift). We find that for a sample of firms followed by analysts these effects are complementary, i.e., each retains incremental ability to predict post-earnings announcement returns. Prior research provides two competing explanations for the high-volume return premium: changes in firm visibility versus differences in risk. We provide evidence that seems to rule out risk-based explanations while supporting the visibility hypothesis.
Keywords: Market efficiency, Trading volume, High-volume return premium, Post-earnings announcement drift
JEL Classification: G14, G29, M41
Suggested Citation: Suggested Citation
Lerman, Alina and Livnat, Joshua and Mendenhall, Richard R., The High-Volume Return Premium and Post-Earnings Announcement Drift (April 2008). Available at SSRN: https://ssrn.com/abstract=1122463 or http://dx.doi.org/10.2139/ssrn.1122463