Post-Earnings-Announcement Drift: The Role of Revenue Surprises

Posted: 22 May 2006

See all articles by Narasimhan Jegadeesh

Narasimhan Jegadeesh

Emory University - Department of Finance

Joshua Livnat

New York University; Prudential Financial - Quantitative Management Associates

Abstract

The study reported here consisted of estimating earnings and sales (or revenue) surprises either with historical time-series data or with analyst forecasts. Post-earnings-announcement drift was found to be stronger when the revenue surprise was in the same direction as the earnings surprise. This result proved to be robust to various controls, including the proportions of stock held by institutional investors, arbitrage risk, and turnover (prior 60-month average trading volume). This finding is consistent with prior evidence that earnings surprises have a more persistent effect on future earnings growth when they consist of higher revenue surprises than when they consist of lower expense surprises.

Keywords: Equity Investments, Fundamental Analysis and Valuation Models, Portfolio Management, Equity Strategies

Suggested Citation

Jegadeesh, Narasimhan and Livnat, Joshua, Post-Earnings-Announcement Drift: The Role of Revenue Surprises. Financial Analysts Journal, Vol. 62, No. 2, pp. 22-34, April 2006. Available at SSRN: https://ssrn.com/abstract=903767

Narasimhan Jegadeesh (Contact Author)

Emory University - Department of Finance ( email )

Atlanta, GA 30322-2710
United States

Joshua Livnat

New York University ( email )

44 West 4th Street, Suite 10-76
Stern School of Business
New York, NY 10012-1118
United States
212-998-0022 (Phone)
212-995-4004 (Fax)

Prudential Financial - Quantitative Management Associates ( email )

2 Gateway Center
6th Fl.
Newark, NJ 07102
United States

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