| Title: |
A Multifactor Explanation of Post-Earnings Announcement Drift. |
| Authors: |
Dongcheol Kim1,2 kim@rbs.rutgers.edu, Myungsun Kim3 sunkim@missouri.edu |
| Source: |
Journal of Financial & Quantitative Analysis. Jun2003, Vol. 38 Issue 2, p383-398. 16p. |
| Subject Terms: |
*Stock prices, *Profit, *Financial statements, *Corporation reports, *Ratio analysis, *Swaps (Finance), *Program trading (Securities), *Arbitrage, *Stock exchanges, *Prices of securities, *Market value, Stock exchanges & current events |
| Abstract: |
To explain post-earnings announcement drift, we construct a risk factor related to unexpected earnings surprise, and propose a four-factor model by adding this risk factor to Fama and French's (1993), (1995) three-factor model. This earnings surprise risk factor provides a remarkable improvement in explaining post-earnings announcement drift when included in addition to the three factors of Fama and French. After adjusting raw returns for the four risk factors, the cumulative abnormal returns over the 60 trading days subsequent to quarterly earnings announcements are economically and statistically insignificant. Furthermore, except for the first two days after the earnings announcement, the cumulative abnormal returns and the arbitrage returns from our four-factor model are relatively stable over the testing period and never significant on any day of the testing period. On the other hand, the arbitrage returns from the other models increase over the 60-day testing period. We argue that most of the post-earnings announcement drift observed in prior studies may be a result of using misspecified models and failing to appropriately adjust raw returns for risk. [ABSTRACT FROM AUTHOR] |
|
Copyright of Journal of Financial & Quantitative Analysis is the property of Cambridge University Press and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.) |
| Database: |
Business Source Complete |
Full Text from JSTOR