The persistence of firm-specific post-earnings announcement returns

Dong Hyun Son, Dan Palmon, Ari Yezegel

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

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 languageEnglish (US)
Pages (from-to)31-47
Number of pages17
JournalInvestment Analysts Journal
Volume47
Issue number1
DOIs
StatePublished - 2018

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Keywords

  • Event study
  • Market efficiency
  • Post-earnings announcement drift
  • Trading strategy

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