PEAD and Illiquidity Premium in the Japanese Market

Akitada Kasahara () and Xin Zhong ()
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Akitada Kasahara: Graduate School of Economics, Osaka University
Xin Zhong: Independent Researcher

No 21-25, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: This paper studies the robustness of post-earnings announcement drift (PEAD) using recent data from the Japanese market. PEAD is the tendency for stocks to drift in the direction of an earnings surprise. Many behavioral finance models have been developed for PEAD since it is hard to explain within risk-based rational asset pricing framework. Recent studies using US data argue that PEAD can be observed only among extremely illiquid and small stocks. This paper confirms that PEAD continues to exist in the Japanese market, and its effect becomes weaker when the liquidity and size are controlled. However, the effect cannot be explained by either liquidity or size premium with factor models.

Keywords: PEAD; liquidity premium (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Pages: 13pages
Date: 2022-01
New Economics Papers: this item is included in nep-his
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