Abstract
This paper examines whether estimates of post-earnings-announcement returns derived from the historical firm-specific relation between earnings and returns help predict future post-earnings-announcement returns. We find that firms with historically high post-earnings announcement returns continue to exhibit high post-earnings announcement returns following future earnings surprises. This finding stands after controlling for a series of confounding factors. A trading strategy which takes advantage of this firm-specific persistence improves returns by approximately 6.2 per cent, annually after accounting for transaction costs. These results are consistent with investors failing to incorporate past firm-specific experience when pricing current quarter earnings announcements.
| Original language | American English |
|---|---|
| Pages (from-to) | 31-47 |
| Number of pages | 17 |
| Journal | Investment Analysts Journal |
| Volume | 47 |
| Issue number | 1 |
| DOIs | |
| State | Published - 2018 |
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics
Keywords
- Event study
- Market efficiency
- Post-earnings announcement drift
- Trading strategy