Can Mutual Funds Profit from Post Earnings Announcement Drift? The Role of Competition

68 Pages Posted: 14 Mar 2012 Last revised: 26 Oct 2016

Ashiq Ali

University of Texas at Dallas - Naveen Jindal School of Management

Xuanjuan Chen

Shanghai University of Finance and Economics

Tong Yao

University of Iowa - Henry B. Tippie College of Business

Tong Yu

University of Cincinnati

Date Written: October 25, 2016

Abstract

This study examines how competition affects the profitability of mutual funds’ trading on the post earnings announcement drift (PEAD). Our results show that while the average fund actively pursuing this strategy does not generate significant outperformance, funds that manage to avoid competition do deliver superior performance. Further, funds stay away from crowded trades by investing in illiquid stocks. Our evidence suggests that when there is a lack of competition, trading costs do not completely wipe out the profitability of trading on an anomaly.

Keywords: mutual funds, competition, post earnings announcement drift, anomaly

Suggested Citation

Ali, Ashiq and Chen, Xuanjuan and Yao, Tong and Yu, Tong, Can Mutual Funds Profit from Post Earnings Announcement Drift? The Role of Competition (October 25, 2016). Available at SSRN: https://ssrn.com/abstract=2020662 or http://dx.doi.org/10.2139/ssrn.2020662

Ashiq Ali

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 West Campbell Road, SM41
Richardson, TX 75080-3021
United States
972-883-6360 (Phone)
972-883-6811 (Fax)

HOME PAGE: http://www.utdallas.edu/~axa042200/

Xuanjuan Chen

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, Shanghai 200433
China

Tong Yao (Contact Author)

University of Iowa - Henry B. Tippie College of Business ( email )

Acquisitions
5020 Main Library
Iowa City, IA 52242-1000
United States

Tong Yu

University of Cincinnati ( email )

P.O. Box 210195
Cincinnati, OH 45221-0195
United States
4019548606 (Phone)
4019548606 (Fax)

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