Post-Earnings-Announcement Drift in Global Markets: Evidence from an Information Shock

Mingyi Hung, Xi Li and Shiheng Wang

The Review of Financial Studies, 2015, vol. 28, issue 4, 1242-1283

Abstract: We investigate whether and how an exogenous and unprecedented improvement in non-U.S. firms' financial-reporting quality affects post-earnings-announcement drift (PEAD). We find that PEAD declines after the information shock, and this decrease is more pronounced for firms with fewer concurrent earnings announcements, greater institutional holdings, and lower limits to arbitrage. In addition, the decrease in PEAD is driven by firms with greater changes in financial reporting, an increase in analyst forecast accuracy and institutional ownership, and a decrease in limits to arbitrage. These findings support the mispricing explanation of PEAD, in particular the limited attention hypothesis, in an international setting.

Date: 2015
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