Information uncertainty and post-earnings-announcement-drift

Published

Journal Article

We examine whether rational investor responses to information uncertainty (IU) explain properties of and returns to the post-earnings-announcement-drift (PEAD) trading anomaly. Consistent with a rational learning explanation, we find that: (1) unexpected earnings (UE) signals that are characterized as having greater IU have more muted initial market reactions; (2) extreme UE portfolios are characterized by securities with higher IU than non-extreme UE portfolios; and (3) within the extreme UE portfolios, high IU securities are more prevalent and earn larger abnormal returns than low IU securities. Further tests show that prior evidence of greater PEAD profitability for higher idiosyncratic volatility securities is explained by the greater information uncertainty associated with these securities. © 2007 Blackwell Publishing Ltd.

Full Text

Duke Authors

Cited Authors

  • Francis, J; Lafond, R; Olsson, P; Schipper, K

Published Date

  • April 1, 2007

Published In

Volume / Issue

  • 34 / 3-4

Start / End Page

  • 403 - 433

Electronic International Standard Serial Number (EISSN)

  • 1468-5957

International Standard Serial Number (ISSN)

  • 0306-686X

Digital Object Identifier (DOI)

  • 10.1111/j.1468-5957.2007.02030.x

Citation Source

  • Scopus