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#33 – Post-Earnings Announcement Effect

Authors: Kwon, Kim

Title: Investment Horizon of Shareholders and Post-Earnings-Announcement Drift

Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2545189

Abstract:

We hypothesize that post-earnings-announcement drift (PEAD) is caused by underreaction of long-term investors since they do not pay much attention to short-term events. Consistent with the hypothesis, empirical observations show that stocks mostly held by long-term investors exhibit strong PEAD, while stocks mostly held by short-term investors does not. The results are still robust even after transaction costs, investor recognition, temporal inattention, and reversal in earnings surprises are controlled for.

Notable quotations from the paper:

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