Anchoring, the 52-Week High and Post Earnings Announcement Drift

68 Pages Posted: 7 Feb 2014 Last revised: 10 Feb 2017

See all articles by Thomas J. George

Thomas J. George

University of Houston - Department of Finance

Chuan-Yang Hwang

Nanyang Technological University (NTU)

Yuan Li

University of Cambridge - Judge Business School; University of Cambridge - Cambridge Endowment for Research in Finance (CERF)

Date Written: February 15, 2015

Abstract

The existence of post earnings announcement drift (PEAD) depends strongly on whether stocks' prices are near (far from) their 52-week highs when positive (negative) earnings surprises arrive. We find that the coincidence of these two effects is what generates significant PEAD. Daily returns around current and future earnings announcements follow a similar pattern --- announcement returns are more muted for extreme positive (negative) surprises, the closer (farther) are prices to the 52-week high. In addition, subsequent announcement returns are greater for these firms, consistent with a correction of previous underreaction. This suggests that an important contributing factor to PEAD is investors anchoring their beliefs about fundamental value on the 52-week high, which restrains price reactions to earnings news.

Keywords: earnings drift, anchoring, 52-week high, anomalies

Suggested Citation

George, Thomas J. and Hwang, Chuan-Yang and Li, Yuan, Anchoring, the 52-Week High and Post Earnings Announcement Drift (February 15, 2015). Available at SSRN: https://ssrn.com/abstract=2391455 or http://dx.doi.org/10.2139/ssrn.2391455

Thomas J. George (Contact Author)

University of Houston - Department of Finance ( email )

Houston, TX 77204
United States

Chuan-Yang Hwang

Nanyang Technological University (NTU) ( email )

Singapore, 639798
Singapore
65-67905003 (Phone)
65-6791-3697 (Fax)

Yuan Li

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

University of Cambridge - Cambridge Endowment for Research in Finance (CERF) ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

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