Post - Earnings Announcement Drift ?

The predictability of abnormal returns based on information contained in past earnings announcements is a statistically and economically significant anomaly. Neither is it illusory, nor is it an artefact of the experimental design. It may be a result of market inefficiency. Our results cannot rule out this explanation. However, we find that the magnitude of the post-earnings announcement effect is correlated with factors that proxy for the ex ante probability of the firm surviving to be part of the earnings surprise sample, and with determinants of the bid-ask spread. The authors are respectively Professor of Finance, Stern School of Business, New York University and Professor of Accounting and Finance, Lancaster University. Pope acknowledges the Economic and Social Research Council (award #R000233813) and the Research Board of the Institute of Chartered Accountants in England and Wales for financial support. The helpful comments of Ray Ball and David Peel and seminar participants at City University Business School, Leeds University, University of Rochester and EIASM (Brussels) are gratefully acknowledged. Correspondence address: Peter F. Pope Department of Accounting and Finance, Lancaster University, LANCASTER, LA1 4YX, U.K. First draft: May 1994 This draft: October 1995 Post-Earnings Announcement Drift?