International Diversification , SFAS 131 , and Post - Earnings Announcement Drift

Using data from 1990-2013, we show 1) the serial correlation of analyst forecast errors increases in the extent of international diversification, 2) PEAD based on analyst forecast errors increases in the extent of international diversification, and 3) the impact of international diversification on the serial correlation of analyst forecast errors and the associated drift is significantly reduced after the implementation of SFAS 131. When we replicate our tests using seasonally differenced earnings, we fail to observe patterns similar to those using analyst forecast errors. Overall, our findings point to the usefulness of accounting information to assist capital markets in pricing earnings of internationally diversified firms.