Post-Earnings Announcement Drift: Evidence from the Corporate Bond Market

55 Pages Posted: 20 Aug 2012 Last revised: 26 Nov 2012

See all articles by Xiaoting Wei

Xiaoting Wei

Monash University

Cameron Truong

Monash University; Financial Research Network (FIRN)

Madhu Veeraraghavan

T.A. PAI Management Institute, Finance Area

Date Written: August 31, 2012

Abstract

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.

Suggested Citation

Wei, Xiaoting and Truong, Cameron and Veeraraghavan, Madhu, Post-Earnings Announcement Drift: Evidence from the Corporate Bond Market (August 31, 2012). 25th Australasian Finance and Banking Conference 2012, Available at SSRN: https://ssrn.com/abstract=2132336 or http://dx.doi.org/10.2139/ssrn.2132336

Xiaoting Wei (Contact Author)

Monash University ( email )

Building 11E
Clayton, Victoria 3800
Australia

Cameron Truong

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Madhu Veeraraghavan

T.A. PAI Management Institute, Finance Area ( email )

Bangalore
Manipal, Karnataka 576104
India
+91-820-2701030 (Phone)

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