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Earnings Volatility Post Earnings Announcement Drift And Trading Frictions
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Book Synopsis Earnings Volatility, Post-Earnings Announcement Drift and Trading Frictions by : Sean Cao
Download or read book Earnings Volatility, Post-Earnings Announcement Drift and Trading Frictions written by Sean Cao and published by . This book was released on 2015 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: We find that lower ex-ante earnings volatility leads to higher Post-Earnings Announcement Drift (PEAD). PEAD is a function of both the magnitude of an earnings surprise and its persistence. While prior research has largely investigated market reactions to the magnitude of the earnings surprise, in this study we show that the persistence of the earnings surprise is equally important. A unique feature of the anomalous PEAD returns documented in this study concerns the association between abnormal returns and trading frictions. Besides documenting that firms with lower earnings volatility have higher abnormal returns, we also find that lower earnings volatility firms have lower trading frictions. Taken together, these findings imply that higher abnormal returns are associated with lower trading frictions. We exploit this implication to empirically demonstrate that PEAD returns due to earnings volatility are not concentrated in the firms with the largest trading frictions, which is in contrast to the findings in prior anomaly studies.
Book Synopsis Trading Frictions and the Post-earnings-announcement Drift by : Josef Fink
Download or read book Trading Frictions and the Post-earnings-announcement Drift written by Josef Fink and published by . This book was released on 2021 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Trading on Corporate Earnings News by : John Shon
Download or read book Trading on Corporate Earnings News written by John Shon and published by FT Press. This book was released on 2011-03-09 with total page 225 pages. Available in PDF, EPUB and Kindle. Book excerpt: Profit from earnings announcements, by taking targeted, short-term option positions explicitly timed to exploit them! Based on rigorous research and huge data sets, this book identifies the specific earnings-announcement trades most likely to yield profits, and teaches how to make these trades—in plain English, with real examples! Trading on Corporate Earnings News is the first practical, hands-on guide to profiting from earnings announcements. Writing for investors and traders at all experience levels, the authors show how to take targeted, short-term option positions that are explicitly timed to exploit the information in companies’ quarterly earnings announcements. They first present powerful findings of cutting-edge studies that have examined market reactions to quarterly earnings announcements, regularities of earnings surprises, and option trading around corporate events. Drawing on enormous data sets, they identify the types of earnings-announcement trades most likely to yield profits, based on the predictable impacts of variables such as firm size, visibility, past performance, analyst coverage, forecast dispersion, volatility, and the impact of restructurings and acquisitions. Next, they provide real examples of individual stocks–and, in some cases, conduct large sample tests–to guide investors in taking advantage of these documented regularities. Finally, they discuss crucial nuances and pitfalls that can powerfully impact performance.
Book Synopsis Investor Trading and the Post Earnings Announcement Drift by : Benjamin C. Ayers
Download or read book Investor Trading and the Post Earnings Announcement Drift written by Benjamin C. Ayers and published by . This book was released on 2011 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine whether the two distinct post-earnings-announcement drifts associated with seasonal random walk-based and analyst-based earnings surprises are attributable to the trading activities of distinct sets of investors. We predict and find that small (large) traders continue to trade in the direction of seasonal random walk-based (analyst-based) earnings surprises after earnings announcements. We also find that when small (large) traders react more thoroughly to seasonal random walk- (analyst-) based earnings surprises at the earnings announcements, the respective drift attenuates. Further evidence suggests that delayed small trades associated with random walk-based surprises are consistent with small traders' failure to understand time-series properties of earnings, whereas delayed large trades associated with analyst-based surprises are more consistent with a longer price discovery process. We also find that the analyst-based drift has declined in recent years.
Book Synopsis Post-Earnings Announcement Drift by : Tomas Tomcany
Download or read book Post-Earnings Announcement Drift written by Tomas Tomcany and published by LAP Lambert Academic Publishing. This book was released on 2010-11 with total page 92 pages. Available in PDF, EPUB and Kindle. Book excerpt: It is a well documented finding in finance theory that share prices drift in the direction of firms' unexpected earnings changes, a phenomenom known as post-earnings announcement drift, or earnings momentum. In this book, I study the stock prices' reaction to firms' quarterly earnings announcements. The book shows that the timeframe in which the drift occurs is related to the size of a firm and is limited in time after the earnings announcement. I further analyze the effect of the number of analysts covering a firm on the magnitude and persistance of post-earnings announcement drift. I document that recent analyst coverage predicts large drifts after the earnings announcements. I suggest several possible explanations, but the evidence seems most consistent with recent analyst coverage providing information about investor (or analyst) expectations regarding firm's future earnings. This book should be useful to professionals in Financial Economics, especially to those interested in Behavioral Finance in stock markets, but also to equity analysts, traders or investors interested in the stocks' response to earnings news.
Book Synopsis STOCK PRICE REACTIONS TO EARNINGS ANNOUNCEMENTS: A by : VICTOR L. BERNARD
Download or read book STOCK PRICE REACTIONS TO EARNINGS ANNOUNCEMENTS: A written by VICTOR L. BERNARD and published by . This book was released on 1992 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Opinion Divergence and Post-Earnings Announcement Drift by : Kirsten L. Anderson
Download or read book Opinion Divergence and Post-Earnings Announcement Drift written by Kirsten L. Anderson and published by . This book was released on 2007 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the relationship between divergent opinions and post-earnings announcement drift. We provide an improved measure of opinion divergence constructed from the dispersion of order flow across Nasdaq market makers that captures the breadth of divergence that is lost by volume-based measures. We find evidence that both limited participation (in the form of delayed price reaction and short sale constraints) and divergent opinions contribute significantly to drift. We also find that earnings surprises induce permanent upward shifts in opinion divergence, trading volume, and return volatility that last up to nine months following the announcement. Our results suggest that opinion divergence elicits added risk in the form of increased volatility with the resulting returns comprising a component of drift. We document that daily opinion divergence is a priced risk factor over the nine month drift period. The persistence of these relationships suggests that opinion divergence represents a fundamental change in the market's assessment of the announcing firm that extends beyond the announcement period and influences post-announcement stock returns.
Book Synopsis Do Individual Investors Cause Post-Earnings Announcement Drift? Direct Evidence from Personal Trades by : David A. Hirshleifer
Download or read book Do Individual Investors Cause Post-Earnings Announcement Drift? Direct Evidence from Personal Trades written by David A. Hirshleifer and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study tests whether naiquest;ve trading by individual investors, or some class of individual investors, causes post-earnings announcement drift (PEAD). Inconsistent with the individual trading hypothesis, individual investor trading fails to subsume any of the power of extreme earnings surprises to predict future abnormal returns. Moreover, individuals are significant net buyers after both negative and positive extreme earnings surprises, consistent with an attention effect, but not with their trades causing PEAD. Finally, we find no indication that trading by individuals explains the concentration of drift at subsequent earnings announcement dates.
Book Synopsis Earnings Response Elasticity and Post-Earnings-Announcement Drift by : Zhipeng Yan
Download or read book Earnings Response Elasticity and Post-Earnings-Announcement Drift written by Zhipeng Yan and published by . This book was released on 2015 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: This article studies the relationship between initial market response to earnings surprise and subsequent stock price movement.We first develop a new measure - the earnings response elasticity (ERE) - to capture initial market response. It is defined as the absolute value of earnings announcement abnormal returns (EAARs) divided by the earnings surprise. The ERE is then examined under various categories contingent on the signs of earnings surprises (+/-/0) and EAARs (+/-). We find that a weaker initial market reaction to earnings surprises, or lower ERE, leads to a larger post-announcement drift.A trading strategy of taking a long position in stocks in the lowest ERE quintile when both earnings surprises and EAARs are positive and a short position when both are negative can generate an average abnormal return of 5.11 per cent per quarter.
Book Synopsis Market Fragmentation and Post-Earnings Announcements Drift by : Justin Cox
Download or read book Market Fragmentation and Post-Earnings Announcements Drift written by Justin Cox and published by . This book was released on 2019 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the effects of dark and lit market fragmentation around both earnings announcements and earnings surprises. I find that both dark and lit market fragmentation increase around earnings announcements. I further test whether dark and lit fragmentation hinders the level of price discovery around the earnings announcement, resulting in greater post-earnings announcement drift, PEAD. My analysis reveals that lit fragmentation has no significant impact on PEAD while dark fragmentation reduces the level of PEAD for stocks with positive earnings surprises consistent with the notion that dark venues capture more uninformed trading around positive news events, resulting in greater informed trading and higher informational efficiency on the lit venue. However, my results also indicate that dark fragmentation leads to stronger PEAD for stocks with negative earnings surprises. This last finding suggests that informed traders migrate to dark venues around negative earnings surprise, consistent with previous literature that argues informed traders follow passive trading strategies around negative news events.
Book Synopsis Post Earnings Announcement Drift, a Price Signal? by : Julien Messias
Download or read book Post Earnings Announcement Drift, a Price Signal? written by Julien Messias and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the robustness of post-earnings-announcement-drift (PEAD) on a price signal perspective, unlike the traditional literature that focuses on fundamental signal. The studied period is 2003-2015, for four main US indices. The results suggest that some economic agents are too slow to integrate the information, although they still have a major market impact. We find a strong empirical evidence of the preeminence of this bias for Momentum stocks rather than blue-chips or non-Momentum small-caps. Even by challenging the strategy, the conclusion remains strong with abnormal returns linked to such market inefficiency, with better returns for positive signals than negative ones. We choose Nasdaq Composite as the backbone of our development as it is the closest index to Uncia's field of expertise. For indices known as Momentum, we find strong predictability of the systematic net exposure, the latter being a consequence of the long and short positions implied by the earnings signals.
Book Synopsis Post-Earnings-Announcement Drift by : Joshua Livnat
Download or read book Post-Earnings-Announcement Drift written by Joshua Livnat and published by . This book was released on 2008 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study explores an additional factor that is associated with differential levels of the post-earnings-announcement drift (henceforth drift) - the contemporaneous surprise in revenues. Consistent with prior evidence about greater persistence of revenues and greater noise caused by heterogeneity of expenses, this study shows that the earnings drift is stronger when the revenue surprise is in the same direction as the earnings surprise. Moreover, the study provides direct evidence that the drift is stronger when the earnings persistence is greater. The results are robust to various controls, including the proportions of stock held by institutional investors, trading liquidity, and arbitrage risk.
Book Synopsis Analysis of Post-earnings Announcement Market Reactions by : Nils Carlson
Download or read book Analysis of Post-earnings Announcement Market Reactions written by Nils Carlson and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The stock market, according to the efficient market hypothesis, is informationally efficient in that prices instantly reflect all available public information. Prior financial literature on the study of the relationship between earnings announcements and their effect on the stock market reveals that there is a significant "drift" of a firm's cumulative abnormal return that occurs in the direction of its earnings surprise. This phenomenon is in contrast to how the efficient market hypothesis would expect the market to react to this new information. The prior studies on this topic were conducted in the 1980s - before the existence of both high-speed access to news via cell phone alerts and the increasing ability to trade quickly on new information via online brokers. This study attempts to test this "post-earnings announcement drift" on the current market to see if this phenomenon is still relevant in today's market and to see if it can be exploited. This study finds that there is still a post-earnings announcement drift that persists for the twenty-one days following earnings announcements. The cumulative abnormal returns continue to drift upwards for "good news" firms and continue to drift downwards for "bad news" firms for twenty-one days and may continue in the same direction after this period. This study also finds that a trading strategy that involves forming long portfolios of firms that beat earnings by the greatest magnitude (most positive earnings surprise) and also have the largest abnormal return on the day of the announcement and forming a short portfolio of firms that miss estimates by the greatest magnitude (most negative earnings surprise) and have the most negative abnormal return on the day of the announcement had an average annualized return of 20.343% over the ten year period starting in 2004 while the S & P 500 had an average annualized return of 9.1% over the same period.
Book Synopsis Implied Standard Deviations and Post-earnings Announcement Volatility by : Daniella Acker
Download or read book Implied Standard Deviations and Post-earnings Announcement Volatility written by Daniella Acker and published by . This book was released on 2000 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Drift Or Jump written by Linda H. Chen and published by . This book was released on 2018 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: One of the contentious issues regarding the post-earnings announcement drift (PEAD) is whether the abnormal stock return is driven by investors' delayed reaction to earnings information or by unexpected information shocks subsequent to earnings announcement. In this paper, we disentangle unexpected large changes in stock prices, known as jumps, from total stock returns. Although on average jump occurs only once per firm quarter, it accounts for up to 40% of the return differential between top and bottom SUE deciles. This is evidence that a significant part of PAED is driven by unexpected information shocks. Nevertheless, the drift component still explains at least 50% of the variation of anomalous PEAD returns. The findings suggest that PEAD cannot be entirely attributed to investors' delayed reaction to earnings information, but neither can the hypothesis be ruled out. In particular, we find that delayed reaction is more pronounced following positive earnings surprises.
Book Synopsis Herding on Earnings News by : Linda H. Chen
Download or read book Herding on Earnings News written by Linda H. Chen and published by . This book was released on 2018 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the role of institutional investors underlying post-earnings-announcement drift (PEAD). Our results show that while institutional investors generally herd on earnings news, such correlated trading among institutions does not eliminate or reduce market underreaction to earnings surprises. Instead, PEAD is significant only in the subsample of stocks where institutions herd in the same direction as earnings surprises. In fact, institutional herding is also positively related to next-quarter earnings announcement returns. We provide evidence that institutional herding on or against earnings news is largely driven by firm characteristics, particularly past firm performance and stock returns. In addition, we find that relative to non-transient institutions, transient institutions have a stronger tendency to herd on earnings information. Finally, based on long-run stock returns, we show that when institutions herd on earnings surprises, institutional trading represents a gradual process of incorporating information into stock prices. On the other hand, when institutions herd against earnings surprises, institutional trading slows down stock price discovery.
Book Synopsis A Multi-factor Explanation of Post-Earnings-Announcement Drift by : Dongcheol Kim
Download or read book A Multi-factor Explanation of Post-Earnings-Announcement Drift written by Dongcheol Kim and published by . This book was released on 2018 with total page 16 pages. Available in PDF, EPUB and Kindle. Book excerpt: To explain post-earnings announcement drift, we construct a risk factor related to unexpected earnings surprise, and propose a four-factor model by adding this risk factor to Fama and French's (1993), (1995) three-factor model. This earnings surprise risk factor provides a remarkable improvement in explaining post-earnings announcement drift when included in addition to the three factors of Fama and French. After adjusting raw returns for the four risk factors, the cumulative abnormal returns over the 60 trading days subsequent to quarterly earnings announcements are economically and statistically insignificant. Furthermore, except for the first two days after the earnings announcement, the cumulative abnormal returns and the arbitrage returns from our four-factor model are relatively stable over the testing period and never significant on any day of the testing period. On the other hand, the arbitrage returns from the other models increase over the 60-day testing period. We argue that most of the post-earnings announcement drift observed in prior studies may be a result of using misspecified models and failing to appropriately adjust raw returns for risk.
