Earnings Autocorrelation and the Post-Earnings-Announcement Drift – Experimental Evidence

University of Graz, School of Business, Economics and Social Sciences Working Paper No. 2020-03

53 Pages Posted: 2 Dec 2020

See all articles by Josef Fink

Josef Fink

affiliation not provided to SSRN

Stefan Palan

University of Graz

Erik Theissen

University of Mannheim - Finance Area

Date Written: October 16, 2020

Abstract

Post-earnings-announcement drift (PEAD) is one of the most solidly documented asset pricing anomalies. We use the controlled conditions of an experimental lab to investigate whether earnings autocorrelation is the driving cause of this anomaly. We observe PEAD in settings with uncorrelated and correlated earnings surprises, implying that earnings autocorrelation is not a necessary condition for PEAD. It rather is a moderator, as the PEAD is stronger when earnings surprises are serially correlated. We further show that market prices underadjust to fundamental value changes, and that trading strategies can profitably exploit the PEAD. Besides offering new results regarding the PEAD-phenomenon, we thus provide a proof-of-concept for the ability of experiments to generate valuable insights into this asset pricing anomaly.

Keywords: post-earnings-announcement drift, earnings autocorrelation, experimental asset markets

JEL Classification: G12, G14, G40, M41

Suggested Citation

Fink, Josef and Palan, Stefan and Theissen, Erik, Earnings Autocorrelation and the Post-Earnings-Announcement Drift – Experimental Evidence (October 16, 2020). University of Graz, School of Business, Economics and Social Sciences Working Paper No. 2020-03, Available at SSRN: https://ssrn.com/abstract=3713106 or http://dx.doi.org/10.2139/ssrn.3713106

Josef Fink

affiliation not provided to SSRN

Stefan Palan (Contact Author)

University of Graz ( email )

Universitaetsstrasse 15/F2
Graz, 8010
Austria
+433163807306 (Phone)

HOME PAGE: http://academic.palan.biz

Erik Theissen

University of Mannheim - Finance Area ( email )

Mannheim, 68131
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
347
Abstract Views
1,479
Rank
162,234
PlumX Metrics