Positive Abnormal Return on Stock Price Drift Financial Essay
Stocks with bad public news in particular show a negative trend for months. Less drift is found for stocks with good news. I interpret this as a sign that prices are slow to reflect bad public news. Furthermore, stocks that had no news stories in the month of the event tend to turn around in the following month. Previous research has shown that there is a positive and significant relationship between current increases in Ramp D spending and future abnormal stock returns. Although the existence of this anomalous pattern is well known, its underlying causes are the subject of much debate. Recent research also shows that transaction costs can lead to apparent market forces. This study examines the profitability of earnings surprise trading in the post-earnings announcement period in the Chinese stock market. We find that a PEAD anomaly exists in China after the earnings announcement. When defining earnings surprise relative to analyst forecasts, a hedging strategy is used where, more specifically, we estimate abnormal returns using the following econometric market-adjusted model: 8 AR i, t, R i, tR m, t where AR i, t is the abnormal return earned by stock i at time t. R i,t is the return on stock i at time t, and R m,t is the value-weighted market index return at time t.1. Introduction. Post-earnings announcement drift PEAD refers to the phenomenon where stock prices continue to drift in the same direction as earnings or earnings surprises for days or even several months. For example, Bernard amp Thomas, 1989, Chan et al. 1996. In the literature, two commonly used indicators are used to capture earnings surprises: the post-earnings announcement drift PEAD, the phenomenon where stock returns persist. drifting in the same direction as the surprise part of an earnings announcement. That is to say: positive. Stronger price drift in the post-announcement period may occur because a greater portion of information is present in the post-announcement period. The pre-estimated slopes are then used to calculate the abnormal returns alpha plus residuals. Zhang, X.F. 2006. Information uncertainty and stock returns. Journal of: 105-136. Googling. Abstract. Using a large sample from the period -2015, we find a positive relationship between the announced company's return on the date of comparable companies' announcements and industry-wide earnings news of comparable companies. Our results imply that earnings announcements from peers play a role in analyst forecast-based post-earnings announcement drift PEAD is the oldest persistent market anomaly, dating back to the first event study published years ago. Ball and Ball notes that articles from the decade after Ball and Brown have shown that there is a PEAD. Fast forward years, empirical studies still show that this paper studies the relationship between the initial market reaction to earnings surprise and the subsequent stock price movement. We first develop a new measure – the earnings response elasticity ERE – to capture the initial market reaction. It is defined as the absolute value of the EARs announcing abnormal returns divided by the stock price. In that case, the stock price will show a lower reaction on the event day, followed by a better abnormal delayed reaction afterwards. In contrast, the high relative facilitates,