Impact of Information Technology on Post-Earnings Announcement Drift

2003 ◽  
Vol 17 (1) ◽  
pp. 1-17 ◽  
Author(s):  
Sharad Asthana
Keyword(s):  
Information Technology ◽  
Transaction Costs ◽  
Value Relevance ◽  
Forecast Errors ◽  
Informational Efficiency ◽  
Market Anomalies ◽  
Earnings Announcement ◽  
Earnings Information ◽  
Post Earnings Announcement Drift ◽  
Time Changes

Post-earnings announcement drift is among the most persistent market anomalies. Two possible causes of the drift are transaction costs that dissuade investors from trading on earnings information immediately, and the market's inability to fully interpret the implications of earnings information. This study hypothesizes that information technology advances have significantly reduced the transaction costs of trading equity stocks and improved the informational efficiency of the capital market. These two changes should, therefore, reduce drift. Using a sample of over 27,000 firm-quarter observations for more than 1,600 firms, the results support the hypothesis that drift has declined significantly with the growth of information technology. The results are robust after controlling for factors correlated with time, changes in the value-relevance of earnings, and previously identified variables that affect the drift, such as size, investor sophistication, and magnitude and sign of analysts' forecast errors. The study provides evidence that the information technology revolution may reduce trading friction and improve informational efficiency.

scholarly journals The Market Sentiment Trend, Investor Inertia, and Post-Earnings Announcement Drift: Evidence from Korea’s Stock Market

2019 ◽  
Vol 11 (18) ◽  
pp. 5137 ◽  
Author(s):  
Shin ◽  
Shin ◽  
Kim
Keyword(s):  
Stock Market ◽  
Stock Price ◽  
Specific Point ◽  
Market Anomalies ◽  
Earnings Announcement ◽  
Market Sentiment ◽  
Earnings Information ◽  
Post Earnings Announcement Drift ◽  
Negative Drift ◽  
Directional Trend

We investigated whether post-earnings announcement drift (PEAD) in the Korean stock market is related to investor inertial behavior under a directional trend in market sentiment. Given that investors tend to procrastinate due to their belief in the persistence of the current market’s condition and thus underreact to earnings information, we examined whether this investor inertia influences the drift in stock price following an earnings announcement. Our findings show that when the market sentiment continues to shift upwardly (downwardly) over the pre- and post-earnings announcement period, positive (negative) drift occurs. Note that these results are robust to control for the effect of market sentiment at a specific point in time. We suggest that investors do not fully respond to new earnings information due to investor inertial behavior under the market sentiment with a consistent trend. Overall, our study sheds light on a determinant of PEAD as one of the market anomalies in terms of investors’ cognitive bias by documenting the relation between PEAD and investor inertia.

Predictability of Analyst Earnings Forecast Errors and Institutional and Individual Investors’ Reactions to Earnings News

2020 ◽  
pp. 0148558X2093933
Author(s):  
Nilhabra Bhattacharya ◽  
Per Olsson ◽  
Hyungshin Park
Keyword(s):  
Institutional Investors ◽  
Forecast Error ◽  
Individual Investors ◽  
Earnings Forecast ◽  
Forecast Errors ◽  
Financial Reports ◽  
Earnings Announcement ◽  
Quarterly Earnings ◽  
Earnings Information ◽  
Analyst Earnings

We decompose analysts’ earnings forecast error into predictable and unpredictable components and investigate individual vis-à-vis institutional investors’ reactions to each of these components. We find that in the immediate post-earnings announcement window, only individuals under-react to the predictable component, while both individuals and institutions under-react to the unpredictable component. The price drift in this window is driven primarily by investors’ under-reaction to the unpredictable component. This drift remains highly significant in larger firms and intensifies in firms with complex financial reports, suggesting that it likely represents the slow and noisy process of price discovery. Around the next quarterly earnings announcement, only individuals under-react to the previous quarter’s predictable component, and this fixation drives the entire price drift in this window. This drift disappears in larger firms and gets exacerbated in firms with greater forecast error autocorrelations, suggesting that it is likely attributable to incomplete processing of earnings information by individuals.

scholarly journals Corporate Social Responsibility and Post Earnings Announcement Drift: Evidence from Korea

2021 ◽  
Vol 13 (11) ◽  
pp. 6496
Author(s):  
Hyunjung Choi ◽  
Haeyoung Ryu
Keyword(s):  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
South Korea ◽  
Capital Market ◽  
Stock Prices ◽  
Management Strategies ◽  
Earnings Announcement ◽  
Earnings Information ◽  
Post Earnings Announcement Drift ◽  
Corporate Social

To promote corporate social responsibility (CSR) in emerging markets such as South Korea to the level of developed nations, support from capital market investors is necessary. That is, CSR activities expand if capital market investors actively invest in companies that pursue such activities. This study thus analyzes the influence of the level of CSR activities on the post-earnings-announcement drift (PEAD) of publicly listed companies in South Korea, given the need to analyze the relationship between capital markets and CSR, which is part of sustainability management strategies. A sample of Korean firms listed on the Korean Stock Exchange from 2014 to 2018 was used for the regression analysis. The financial and stock return data were extracted from the KIS-Value database and CSR activities data were collected from the Korea Economic Justice Institute (KEJI) Index. The empirical analysis determined that more inactive companies in terms of CSR exhibited greater PEAD magnitude. Furthermore, high information asymmetry was found to further increase the magnitude of PEAD. These results indicate that investors cannot make swift investment decisions because of their low confidence in the information disclosed by inactive CSR companies; as a result, earnings information is slowly reflected in the stock prices of the period following disclosure. These findings suggest that CSR plays an important role in boosting investor confidence in corporate earnings information.

The Effect of Conference Calls on Analyst and Market Underreaction to Earnings Announcements

2005 ◽  
Vol 80 (1) ◽  
pp. 189-219 ◽  
Author(s):  
Michael D. Kimbrough
Keyword(s):  
Earnings Announcements ◽  
Analyst Forecast ◽  
Forecast Errors ◽  
Conference Calls ◽  
Conference Call ◽  
Earnings Announcement ◽  
Post Earnings Announcement Drift ◽  
Investor Sophistication ◽  
Two Measures ◽  
Matched Samples

I extend prior research on the information content of conference calls by examining whether they accelerate analysts' and investors' responses to the future implications of currently announced earnings. I find that the initiation of conference calls is associated with a significant reduction in the serial correlation in analyst forecast errors, a measure of initial analyst underreaction. I also find that the initiation of conference calls is associated with significant reductions in two measures of initial investor underreaction: (1) post-earnings announcement drift and (2) the proportion of the total market reaction to firms' earnings announcements that is “delayed” (i.e., that is attributable to post-earnings announcement drift). The reduction in post-earnings announcement drift surrounding conference call initiation is concentrated in the set of sample firms where drift is most severe (i.e., the smallest, least heavily traded sample firms) while the largest, most heavily traded sample firms do not exhibit significant drift either before or after conference call initiation. Robustness tests, including analyses of matched samples of nonconference call firms, indicate that the results are not driven by general increases in analyst and investor sophistication over time or by contemporaneous increases in the information and trading environments of conference call initiators.

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