Trading Frictions and the Post-Earnings-Announcement Drift

42 Pages Posted: 23 Feb 2021

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: February 17, 2021

Abstract

We use laboratory experiments to analyze how the existence of trading frictions (a transaction fee and a ban on short selling and margin buying) affects occurrence and strength of the post-earnings-announcement drift. We find lower trading activity and higher asset prices in the presence of frictions. While the initial price reaction to earnings announcements is weaker, the strength of the PEAD is not materially affected. Trading strategies aimed at exploiting the PEAD are less profitable in the presence of frictions.

Keywords: post-earnings-announcement drift, trading frictions, experimental asset markets

JEL Classification: G12,G14,G40,M41

Suggested Citation

Fink, Josef and Palan, Stefan and Theissen, Erik, Trading Frictions and the Post-Earnings-Announcement Drift (February 17, 2021). Available at SSRN: https://ssrn.com/abstract=3788093 or http://dx.doi.org/10.2139/ssrn.3788093

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
143
Abstract Views
871
Rank
377,965
PlumX Metrics