Abstract
I empirically measure the effect of public surprises, media coverage and private information on the post-announcement drift. Since private information is not observed by the econometrician, I use transaction-level data and Easley and O'Hara's (1992) microstructure model to calculate the probability of private informationbased trading, PIN, prior to an earnings announcement. Using the PIN measure together with a comprehensive public news database I show that stocks associated with high PIN, public news surprises agents agree on and low media coverage experience low or insignificant drift. The main conclusion is that not all information-acquisition variables have the same effect on the market's efficiency. Whether information is public or private is irrelevant; what matters is whether information is associated with the arrival rate of noise traders, informed traders, uncertainty or disagreement among traders.
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