Earnings autocorrelation and the post-earnings-announcement drift - experimental evidence

Fink, Josef ; Palan, Stefan ; Theissen, Erik

URL: https://static.uni-graz.at/fileadmin/sowi/Working_...
Additional URL: https://ideas.repec.org/p/grz/wpsses/2020-03.html
Document Type: Working paper
Year of publication: 2020
The title of a journal, publication series: Working Paper
Volume: 2020-03
Place of publication: Graz
Publishing house: Karl-Franzens-Universität Graz, Sozial- und Wirtschaftswissenschaftliche Fakultät
ISSN: 2304-7658
Publication language: English
Institution: Business School > ABWL u. Finanzierung (Theissen 2009-)
Subject: 330 Economics
Abstract: Post-earnings-announcement drift (PEAD) is one of the most solidly documented asset pricing anomalies. We use the controlled conditions of an experimental lab to investigate whether earnings autocorrelation is the driving cause of this anomaly. We observe PEAD in settings with uncorrelated and correlated earnings surprises, implying that earnings autocorrelation is not a necessary condition for PEAD. It rather is a moderator, as the PEAD is stronger when earnings surprises are serially correlated. We further show that market prices underadjust to fundamental value changes, and that trading strategies can profitably exploit the PEAD. Besides offering new results regarding the PEAD-phenomenon, we thus provide a proof-of-concept for the ability of experiments to generate valuable insights into this asset pricing anomaly.
Additional information: Online-Ressource

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