Abstract
This paper studies competing explanations for the Post-Earnings-Announcement Drift (PEAD) anomaly. We decompose analyst-forecast error into a component predictable by prior stock returns and a surprise component, with the predictable component interpreted as expected earnings. Under the investment-based asset-pricing explanation for PEAD, both components are related to future earnings and thus to expected returns. In contrast, under the investor underreaction explanation, PEAD is driven only by the surprise component. We find that purging the expected earnings component reduces PEAD profits by up to 54%, which suggests that a substantial part of the PEAD is consistent with investment-based asset pricing.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
