Post-Earnings Announcement Drift?
Posted: 8 Jul 1998
Date Written: February 1996
The predictability of abnormal returns based on information contained in past earnings announcements is an anomaly that is statistically and economically significant. It is neither illusory, nor an artifact of the experimental design. It may be a result of market inefficiency. Our results cannot rule out this explanation. However, we find that earnings change numbers are associated with the probabilities that firms leave the sample through acquisition, bankruptcy and for other reasons, and with the probability that they are not included in the sample in the first place. Moreover, we find that the magnitude of the post-earnings announcement effect is correlated with factors that proxy for the ex ante probability of the firm surviving to be part of the earnings surprise sample. It also appears to be related to determinants of the bid-ask spread.
JEL Classification: G14, M41
Suggested Citation: Suggested Citation