Liquidity and the post-earnings-announcement drift
Journal
Financial Analysts Journal
Subject
Accounting
Publishing details
Authors / Editors
Chordia T;Goyal A;Sadka G;Sadka R;Shivakumar L
Biographies
Publication Year
2009
Abstract
The post-earnings-announcement drift is a long-standing anomaly that conflicts with market efficiency. This study documents that the post-earnings-announcement drift occurs mainly in highly illiquid stocks. A trading strategy that goes long high-earnings-surprise stocks and short low-earnings-surprise stocks provides a monthly value-weighted return of 0.04 percent in the most liquid stocks and 2.43 percent in the most illiquid stocks. The illiquid stocks have high trading costs and high market impact costs. By using a multitude of estimates, the study finds that transaction costs account for 70-100 percent of the paper profits from a long-short strategy designed to exploit the earnings momentum anomaly.
Available on ECCH
No
