Earnings Volatility, Post-Earnings Announcement Drift, and Trading Frictions

• 成果类型: Article
• 署名作者: Cao, Sean Shun; Narayanamoorthy, Ganapathi S.
• 署名单位: University of Massachusetts System; University of Massachusetts Amherst; University of Illinois System; University of Illinois Urbana-Champaign
• 刊物名称: JOURNAL OF ACCOUNTING RESEARCH
• ISSN/ISSBN: 0021-8456
• DOI: 10.1111/j.1475-679X.2011.00425.x
• 发表日期: 2012
• 页码: 41-74
• 关键词: prices fully reflect; stock-prices; RISK; INFORMATION; EFFICIENCY; returns; ANALYST

摘要

We find that lower ex ante earnings volatility leads to higher PostEarnings 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 here concerns the association between abnormal returns and trading frictions. Besides demonstrating 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.