The Post Earnings Drift Is A Stock Market Phenomenon That Proves Efficient Market Theorists Wrong | Exploring Markets

The Post Earnings Drift Is A Stock Market Phenomenon That Proves Efficient Market Theorists Wrong

For firms that report good news in quarterly earnings, their abnormal security returns tend to drift upwards for at least 60 days following their earnings announcement. Similarly, firms that report bad news in earnings tend to have their abnormal security returns drift downwards for a similar period. This phenomenon is called post-announcement drift. (Wikipedia
The Earnings Announcement Return (EAR) captures the market reaction to unexpected information contained in the company’s earnings release. Besides the actual earnings news, this includes unexpected information about sales, margins, investment, and other less tangible information communicated around the earnings announcement. A strategy that buys and sells companies sorted on EAR produces an average abnormal return of 7.55% per year, 1.3% more than a strategy based on the traditional measure of earnings surprise, SUE. (Original PDF)

Post Earnings Announcement Return
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