Published on: 2015-03-15
Post-Earnings-Announcement Drift in Global Markets: Evidence from an Information Shock*
HKUST IEMS Working Paper No. 2015-17 (March 2015)
Mingyi HUNG, Xi LI, Shiheng WANG
We investigate whether and how an exogenous and unprecedented improvement in non-U.S. firms’ financial reporting quality affects post-earnings-announcement drift (PEAD). We find that PEAD declines after the information shock, and this decrease is more pronounced for firms with fewer concurrent earnings announcements, greater institutional holdings, and lower limits to arbitrage. In addition, the decrease in PEAD is driven by firms with greater changes in financial reporting, an increase in analyst forecast accuracy and institutional ownership, and a decrease in limits to arbitrage. These findings support the mispricing explanation of PEAD, in particular the limited attention hypothesis, in an international setting.
* Forthcoming at Contemporary Accounting Research