Earnings autocorrelation and the post-earnings-announcement drift: Experimental evidence

Josef Fink, Stefan Palan () and Erik Theissen

No 20-10, CFR Working Papers from University of Cologne, Centre for Financial Research (CFR)

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.

Keywords: post-earnings-announcement drift; earnings autocorrelation; experimental asset markets (search for similar items in EconPapers)
JEL-codes: G12 G14 G40 M41 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-exp and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/226390/1/1738486451.pdf (application/pdf)

Related works:
Journal Article: Earnings Autocorrelation and the Post-Earnings-Announcement Drift: Experimental Evidence (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfrwps:2010

Access Statistics for this paper

More papers in CFR Working Papers from University of Cologne, Centre for Financial Research (CFR) Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().