Post-Earnings Announcement Drift: Evidence from the Corporate Bond Market
55 Pages Posted: 20 Aug 2012 Last revised: 26 Nov 2012
Date Written: August 31, 2012
This study examines the bond pricing behaviour over a 30-day interval subsequent to earnings announcements in the sample period of 2002 – 2010. Our results report a significant and positive relation between bond returns and earnings surprises over the 30-day post-earnings announcement period. In addition, we find that this post-earnings announcement drift is mainly driven by negative earnings news. Bond prices do not exhibit a significant response to positive earnings news. This evidence is consistent with the bond asymmetric payoff function according to Black and Scholes (1973). Furthermore, we examine the impact of bond riskiness on bond price reaction to earnings announcements. We find evidence of a stronger reaction from riskier (speculative-grade) bonds to earnings announcements over the 60-day interval.
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