Post Earnings Announcement Drift: More Risk than Investors can Bear

J.P.M. Suijs

Research output: Working paperDiscussion paperOther research output

261 Downloads (Pure)

Abstract

This paper shows how post earnings announcement drift may arise in a capital market with rational investors if the firm's earnings in consecutive periods are positively correlated and there is a fixed supply of the firm's shares.This result is driven by the fact that equilibrium share prices depend on the forward looking information contained in current earnings and the amount of risk that the fixed supply of shares imposes on the investors.If the latter is sufficiently large, share prices will be relatively rigid with respect to the forward looking information contained in current earnings.Hence, good (bad) news yields an increase (decrease) in the equilibrium price that is too small compared to the information that is released in the earnings announcement, so that positive (negative) abnormal returns are likely to occur again in the next period.
Original languageEnglish
Place of PublicationTilburg
PublisherAccounting
Number of pages26
Volume2002-45
Publication statusPublished - 2002

Publication series

NameCentER Discussion Paper
Volume2002-45

Keywords

  • earnings per share
  • capital markets
  • investment

Fingerprint Dive into the research topics of 'Post Earnings Announcement Drift: More Risk than Investors can Bear'. Together they form a unique fingerprint.

Cite this