Investor Trading and the Post Earnings Announcement Drift

46 Pages Posted: 20 Sep 2008 Last revised: 17 Sep 2011

See all articles by Benjamin C. Ayers

Benjamin C. Ayers

University of Georgia

Oliver Zhen Li

National University of Singapore (NUS)

P. Eric Yeung

Cornell University - Samuel Curtis Johnson Graduate School of Management

Date Written: August 1, 2010

Abstract

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

Ayers, Benjamin C. and Li, Oliver Zhen and Yeung, P. Eric, Investor Trading and the Post Earnings Announcement Drift (August 1, 2010). AAA 2009 Financial Accounting and Reporting Section (FARS) Paper ; The Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1270811 or http://dx.doi.org/10.2139/ssrn.1270811

Benjamin C. Ayers

University of Georgia ( email )

Athens, GA 30602
United States
706-542-3772 (Phone)
706-542-3630 (Fax)

Oliver Zhen Li

National University of Singapore (NUS) ( email )

Bukit Timah Road 469 G
Singapore, 117591
Singapore

P. Eric Yeung (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

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