Abstract
Over the last 2 decades after-hours earnings announcements have become more prevalent, resulting in a shift in earnings-related price changes from the announcement date to the next trading day. We highlight three aspects relevant for event studies around earnings announcements. First, daily price changes and volume are significantly biased if event dates are not adjusted for after-hours announcements. Second, correct measurement of event day 0 significantly increases the power to detect abnormal returns Third, if event dates can not be adjusted for after-hours announcements, earnings announcement windows should include the day after the announcement (event day +1) to ensure price changes and volume in reaction to after-hours announcements are included. Furthermore, if event dates are not adjusted, the post-earnings announcement drift should not include the return on event day +1.
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