Post-Earnings Announcement Drift in Spain and Behavioural Finance Models

Posted: 1 Nov 2009

See all articles by Carlos Forner

Carlos Forner

Universidad de Alicante-Dpto. Economía Financiera

Sonia Sanabria

Universidad de Alicante-Dpto. Economía Financiera

Date Written: November 1, 2009

Abstract

Our study examines whether behavioural theories can explain post-earnings announcement drift (i.e., earnings momentum) in the Spanish market. In particular, we test models proposed by Daniel, Hirshleifer, and Subrahmanyan (1998), Hong and Stein (1999), and Barberis, Shleifer, and Vishny (1998). Each of these behavioural models draws on two premises – cognitive biases and limits to arbitrage – that we assume will vary with a given country's cultural and institutional features. Therefore, we must exercise caution when extrapolating the favourable results observed in the U.S. market to markets outside of the United States. Our results provide little evidence in support of the hypothesis used to test whether these models can indeed explain the earnings momentum anomaly in the Spanish market. We believe some characteristics of the Spanish market, such as its lower score on the Individualism Index, lower levels of investor protection, and code law–based legal system, may explain why our results differ from those obtained in the United States.

Keywords: post-earnings announcement drift, momentum, behavioural finance

JEL Classification: G14, G11, M41

Suggested Citation

Forner Rodríguez, Carlos and Sanabria, Sonia, Post-Earnings Announcement Drift in Spain and Behavioural Finance Models (November 1, 2009). European Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1498029

Carlos Forner Rodríguez (Contact Author)

Universidad de Alicante-Dpto. Economía Financiera ( email )

Ctra. S. Vicente s/n
03690-S. Vicente del Raspeig
Alicante, San Vicente del Raspeig - Alicante 03690
Spain

Sonia Sanabria

Universidad de Alicante-Dpto. Economía Financiera ( email )

Ctra. S. Vicente s/n
Alicante 03690
Spain

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