Can mutual funds profit from post earnings announcement drift? The role of competition

Ashiq Ali, Xuanjuan Chen, Tong Yao and Tong Yu

Journal of Banking & Finance, 2020, vol. 114, issue C

Abstract: This study examines how competition affects the profitability of mutual funds’ trading on the post earnings announcement drift (PEAD). Our results show that among funds actively pursuing this strategy, only those that manage to avoid competition deliver superior performance. Further, we find that funds avoid competition by investing in illiquid stocks. Our analysis shows that the outperformance of these low-competition funds is mainly attributable to their information advantage in identifying mispricing among illiquid stocks.

Date: 2020
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:114:y:2020:i:c:s037842662030042x

DOI: 10.1016/j.jbankfin.2020.105774

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