Post-Split Drift and Post-Earnings Announcement Drift: One Anomaly or Two?

Abstract

We find that the phenomenon of post-split return drift continues to hold during the 1984–2012 period, but the drift mainly concentrates in the first three months after the announcements. Given the short duration of the drift, we explore whether the post-split drift is partially driven by the post-earnings announcement return drift. The results indicate that splits and earnings surprises are correlated but generate distinct drifts. Exploiting the two distinct drift patterns, our trading strategy generates a monthly value-weighted abnormal return of 1.54% (equivalent to 18.5% per annum) after controlling for size, book-to-market, momentum, and liquidity.