Investor Trading and the Post Earnings Announcement Drift
46 Pages Posted: 20 Sep 2008 Last revised: 17 Sep 2011
Date Written: August 1, 2010
We examine whether the two distinct post-earnings-announcement drifts associated with seasonal random walk-based and analyst-based earnings surprises are attributable to the trading activities of distinct sets of investors. We predict and find that small (large) traders continue to trade in the direction of seasonal random walk-based (analyst-based) earnings surprises after earnings announcements. We also find that when small (large) traders react more thoroughly to seasonal random walk- (analyst-) based earnings surprises at the earnings announcements, the respective drift attenuates. Further evidence suggests that delayed small trades associated with random walk-based surprises are consistent with small traders’ failure to understand time-series properties of earnings, whereas delayed large trades associated with analyst-based surprises are more consistent with a longer price discovery process. We also find that the analyst-based drift has declined in recent years.
Keywords: Investor Trading, Post Earnings Announcement Drift
JEL Classification: G12, G14, G29, M41
Suggested Citation: Suggested Citation