Post-earnings announcement drift and parameter uncertainty: evidence from industry and market news

Review of Quantitative Finance and Accounting - Tập 55 - Trang 695-738 - 2019
Claire Y. C. Liang1, Rengong Zhang2
1Maine Business School, University of Maine, Orono, USA
2Department of Accountancy, City University of Hong Kong, Kowloon, Hong Kong

Tóm tắt

Post-earnings announcement drift (PEAD), one of the most prominent and robust return anomalies, is often attributed to investor naiveté or irrationality. A competing explanation is parameter uncertainty, which posits that PEAD may occur as rational investors encounter parameter uncertainty and must learn about the true values of a firm’s pricing parameters over time. This study extends the parameter uncertainty explanation for PEAD and hypothesizes that industry or market news arriving during the drift period affects drift strength. Consistent with our hypothesis, we find that the prices of high surprise firms show stronger responses to industry/market news in the drift period. Hence, the drift becomes stronger (weaker or reversed) when drift-period industry/market news agrees (disagrees) with a firm’s prior earnings news. The evidence helps to distinguish the parameter uncertainty theory from competing behavioral explanations based on investor naiveté or irrational biases, a task previous studies find difficult. Overall, our findings indicate that asset pricing anomalies need not imply investor irrationality—anomalies could arise from rational investors learning about pricing parameters over time.

Tài liệu tham khảo

Ayers BC, Li OC, Yeung PE (2011) Investor trading and the post-earnings-announcement drift. Account Rev 86(2):385–416 Baker M, Wurgler J (2006) Investor sentiment and the cross-section of stock returns. J Finance 61(4):1645–1680 Ball R, Brown P (1968) An empirical evaluation of accounting income numbers. J Account Res 6(2):159–178 Barinov A, Park SS, Yildizhan C (2019) Firm complexity and post-earnings announcement drift. In: Working paper, University of Georgia. Available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2360338 Bernard VL, Seyhun HN (1997) Does post-earnings-announcement drift in stock prices reflect a market inefficiency? A stochastic dominance approach. Rev Quant Financ Account 9(1):17–34 Bernard VL, Thomas JK (1989) Post-earnings announcement drift: delayed price response or risk premium? J Account Res 27(Suppl.):1–36 Bernard VL, Thomas JK (1990) Evidence that stock prices do not fully reflect the implications of current earnings for future earnings. J Account Econ 13:305–340 Bhattacharya D, Kumar R, Sonaer G (2012) Momentum loses its momentum: Implications for market efficiencies. In: Working paper, Virginia Polytechnic Institute and State University. Available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1928764 Brandt MK., Kishore R, Santa-Clara P, Venkatachalam M (2008) Earnings announcements are full of surprises. In: Working Paper, Duke University. Available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=909563 Brav A, Heaton JB (2002) Competing theories of financial anomalies. Rev Financ Stud 15(2):575–606 Carhart MM (1997) On the persistence of mutual fund performance. J Finance 52:57–82 Chan LKC, Jegadeesh N, Lakonishok J (1996) Momentum strategies. J Finance 51(5):1681–1773 Chordia T, Shivakumar L (2005) Inflation illusion and the post-earnings announcement drift. J Account Res 43(4):521–556 Chordia T, Shivakumar L (2006) Earnings and price momentum. J Financ Econ 80:627–656 Chordia T, Goyal A, Sadka G, Sadka R, Shivakumar L (2009) Liquidity and the post-earnings-announcement drift. Financ Anal J 65(4):18–32 Chordia T, Subrahmanyam A, Tong Q (2014) Have capital market anomalies attenuated in the recent era of high liquidity and trading activity? J Account Econ 58:41–58 Collin-Dufresne P, Johannes M, Lochstoer LA (2016) Parameter learning in general equilibrium: the asset pricing implications. Am Econ Rev 106(3):664–698 Daniel K, Hirshleifer D, Subrahmanyam A (1998) Investor psychology and security market under- and overreactions. J Finance 53(6):1839–1885 De Bondt WFM, Thaler RH (1985) Does the stock market overreact? J Finance 40:793–805 Doyle JT, Lundholm RJ, Soliman MT (2006) The extreme future stock returns following I/B/E/S earnings surprises. J Account Res 44(5):849–887 Du D, Denning K, Zhao X (2011) Evidence on stock reaction to market-wide information. Rev Pac Basin Financ Mark Polic 14(2):297–325 Duarte J, Kamara A, Siegel S, Sun C (2014) The systematic risk of idiosyncratic volatility. In: Working paper, University of Washington. Available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905731 Eden B, Loewenstein U (1999) Resolution of uncertainty and asset prices: why the timing of information release might be relevant after all. Rev Quant Financ Account 13(1):63–82 Fama EF (1998) Market efficiency, long-term returns and behavioral finance. J Financ Econ 49:283–306 Fama EF, French KR (1992) The cross-section of expected stock returns. J Finance 47(2):427–465 Fama EF, MacBeth JD (1973) Risk, return and equilibrium: empirical tests. J Polit Econ 81:607–636 Forbes W, Giannopoulos G (2015) Post-earnings announcement drift in Greece. Rev Pac Basin Financ Mark Polic 18(3):1–20 Francis J, Lafond R, Olsson P, Schipper K (2007) Information uncertainty and post-earnings-announcement-drift. J Bus Finance Account 34(3–4):403–433 Green J, Hand JRM, Soliman MT (2011) Going, going, gone? The apparent demise of the accruals anomaly. Manag Sci 57(5):797–816 Green J, Hand JRM, Zhang XF (2017) The characteristics that provide independent information about average U.S. monthly stock returns. Rev Financ Stud 30(12):4389–4436 Han B, Hong D, Warachka M (2009) Forecast accuracy uncertainty and momentum. Manag Sci 55(6):1035–1046 Hou K (2007) Industry information diffusion the lead-lag effect in stock returns. Rev Financ Stud 20(4):1113–1138 Hui KW, Yeung PE (2013) Underreaction to industry-wide earnings and the post-forecast revision drift. J Account Res 51(4):701–737 Hwang S, Rubesam A (2015) The disappearance of momentum. Eur J Finance 21(7):584–607 Jegadeesh N, Titman S (1993) Returns to buying winners and selling losers: implications for stock market efficiency. J Finance 48:65–91 Jiang G, Lee CMC, Zhang Y (2005) Information uncertainty and expected returns. Rev Account Stud 10:185–221 Johannes M, Lochstoer LA, Mou Y (2016) Learning about consumption dynamics. J Finance 71(2):551–600 Ju N, Miao J (2012) Ambiguity, learning, and asset returns. Econometrica 80(2):559–591 Kothari SP, Lewellen J, Warner JB (2006) Stock returns, aggregate earnings surprises and behavioral finance. J Financ Econ 79:537–568 Kovacs T (2016) Intra-industry information transfers and the post-earnings announcement drift. Contemp Account Res 33(4):1549–1575 Lakonishok J, Shleifer A, Vishny RW (1994) Contrarian investment, extrapolation and risk. J Finance 49:1541–1578 Lewellen J, Shanken J (2002) Learning, asset-pricing tests and market efficiency. J Financ 57(3):1113–1145 Livnat J, Mendenhall RR (2006) Comparing the post-earnings announcement drift for surprises calculated from analyst and time series forecasts. J Account Res 44(1):177–205 Markov S, Tamayo A (2006) Predictability in financial analyst forecast errors: learning or irrationality? J Account Res 44(4):725–761 Mendenhall R (2004) Arbitrage risk and post-earnings-announcement drift. J Bus 77(4):875–894 Milian JA (2015) Unsophisticated arbitrageurs and market efficiency: overreacting to a history of underreaction? J Account Res 53(1):175–220 Nallareddy S (2012) Does differential sensitivity to aggregate earnings shocks drive post-earnings announcement drift? In: Working paper, Columbia Business School. Available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2163237 Neururer T, Papadakis G, Riedl EJ (2016) Tests of investor learning models using earnings innovations and implied volatilities. Rev Account Stud 21(2):400–437 Ng J, Rusticus TO, Verdi RS (2008) Implications of transaction-costs for the post-earnings-announcement drift. J Account Res 46(3):661–696 Pastor L, Veronesi P (2009) Learning in financial markets. Annu Rev Financ Econ 1:361–381 Petersen MA (2009) Estimating standard errors in finance panel data sets: comparing approaches. Rev Financ Stud 22:435–480 Pontiff J (2006) Costly arbitrage and the myth of idiosyncratic risk. J Account Econ 42:35–52 Ramnath S (2002) Investor and analyst reactions to earnings announcements of related firms: an empirical analysis. J Account Res 40(5):1351–1376 Richardson S, Tuna I, Wysocki P (2010) Accounting anomalies and fundamental analysis: a review of recent research advances. J Account Econ 50:410–454 Thomas J, Zhang XJ (2008) Overreaction to intra-industry information transfers? J Account Res 46(4):909–940 Wang B, Choi W, Sirag I (2018) Local investor attention and post-earnings announcement drift. Rev Quant Financ Account 51:219–252 Yen G, Lee C (2008) Efficient market hypothesis (EMH): past, present and future. Rev Pac Basin Financ Mark Polic 11(2):305–329 Zhang XF (2006) Uncertainty and stock returns. J Financ 61(1):105–137 Zhang L (2012) The effect of ex ante management forecast accuracy on the post-earnings announcement drift. Account Rev 87(5):1791–1818 Zhang Q, Cai CX, Keasey K (2014) The profitability, costs and systematic risk of the post-earnings-announcement-drift trading strategy. Rev Quant Financ Account 43(3):605–625