Who is trading the Post-earnings announcement drift or PEAD ?

Discussion in 'Trading' started by TrAndy2022, Nov 9, 2022.

  1. TrAndy2022

    TrAndy2022

    Who is trading the Post-earnings announcement drift or PEAD and what is your experience with it ?

    Here are some studies for your info.
    Post-Earnings-Announcement Drift in the UK
    https://papers.ssrn.com/sol3/papers.cfm?abstract_id=249959
    Momentum and Post-Earnings-Announcement Drift Anomalies: The Role of Liquidity Risk
    https://papers.ssrn.com/sol3/papers.cfm?abstract_id=428160
    Volume, Opinion Divergence and Returns: A Study of Post-Earnings Announcement Drift
    https://papers.ssrn.com/sol3/papers.cfm?abstract_id=280913
    Earnings and Price Momentum
    https://papers.ssrn.com/sol3/papers.cfm?abstract_id=342581&rec=1&srcabs=1087391
    Underreaction or Overreaction: The Post Earnings Announcement Drift
    https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2420799
    50 Years in PEAD Research
    https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3281679
    Abstract for 50 Years in PEAD Research
    Analysing earning’s predictive power on stock returns was in the heart of academic research since late 60’s. First introduced to academic world in 1967 during seminar “Analysis of Security Prices” by Chicago University Professors Ray Ball and Philip Brown. In the next four decades was extensively analysed by many academics and is now a well-documented anomaly and is referred to as Post Earnings Announcement Drift (PEAD). This phenomenon is still at the centre of academic research because it stands at odds with efficient market hypothesis which assumes that all information is instantaneously reflected in stock prices. Professional investors are also closely looking at PEAD as it implies that it is easy to beat the market average by simply ranking stocks based on their earnings surprise and investing in the top decile, quintile or quartile and shorting the bottom part. Academic evidence shows that this strategy produces an abnormal return of somewhere between 2.6% and 9.37% per quarter, according to various authors.
    ---
    That much Alpha here ?
     
  2. Poljot

    Poljot

    Surely some major funds are trading it and therefore the prices drift.
     
    TrAndy2022 likes this.