Loading presentation...

Present Remotely

Send the link below via email or IM


Present to your audience

Start remote presentation

  • Invited audience members will follow you as you navigate and present
  • People invited to a presentation do not need a Prezi account
  • This link expires 10 minutes after you close the presentation
  • A maximum of 30 users can follow your presentation
  • Learn more about this feature in our knowledge base article

Do you really want to delete this prezi?

Neither you, nor the coeditors you shared it with will be able to recover it again.


Post Earning Announcement Drift

No description

jewe bastian

on 23 September 2013

Comments (0)

Please log in to add your comment.

Report abuse

Transcript of Post Earning Announcement Drift

Post Earning Announcement Drift
Jessica Wijaya
Priska Yuwono
Yifei wang
Jiahui zhang
Cheming zhang

Post Earning Announcement Drift
- Market Efficiency

- Equity Market Anomaly

- PEAD: delayed response to
information in the stock market

- PEAD Phenomenon
--> Good News : Drift Upward
--> Bad News: Drift Downward
Empirical test to identify a drift
Conducting Simple Trading Strategy

Sample : NYSE/AMEX firms and NASDAQ

Measuring of earning surprise and the key to profit
1. Analyst Forecast-based and Past-earning based measure of earning

2. This leads to unexpected earnings or PEAD

3. Earning surprise

Strategy to enjoy a post earning announcement drift
Company meet three things in their earning release:
- Current earning surprise
- Current firm performance
- Future firm performance

To find post-earnings announcement price drift:
- Investor needs set of data analysis

Reasons of PEAD
1. A portion of the price response to a new information is delayed

2. CAPM is incomplete / misestimated

1. EAR

abnormal return for firm

2. SUE

- Earnings surprise : standard deviation of earnings surprise

- Earning surprise = actual earnings – expected earnings

-Expected earnings computed using a seasonal random walk 
3. Portfolio assignment

a bias is introduced when firms are assigned to portfolios.  

- Good news : investors take long position in the stocks

- Bad news : investors take short position in stocks

- Holding period : one quarter (60 working days)

- Portfolio is rebalanced every quarter

Current Earning surprise
- Rank earnings surprise at the calendar quarter of the earnings announcements

- Lead to ------a peek-head bias in the returns of the earnings

- Limitation: require a full collection of all earnings reported in the same calendar quarter for the ranking procedure

Current and Future firm performance
- Current firm performance predicts future firm performance

- Three metrics of firm performance
1. EARNINGS--------by the market price at the end of year
2. ROE (return on equity)-------by equity value at the end of year
3. ROA (return on assets)----------by total assets at the end of year

Data analysis for earning announcements
- IBES sample-------IBES International Detail File for all Chinese firms over the period 1994-2009.

- The Bloomberg sample--------Bloomberg : wider coverage of 36,772 quarterly earnings announcements from Chinese firms over the period 1994-2009

Profiting from Post earning announcement drift
- Using the SUE (standardized unexpected earnings) to quantify how actively a fund trades on the drift anomaly

- SIM, which is essentially the covariance between portfolio weight changes and SUEs of individual stocks traded by the fund

- SIM4: the rolling average of SIMs over four quarters
Profiting from Post earning announcement drift
- To examine the effect of transaction costs on mutual funds’ PEAD related trading:
1. estimate transaction costs for sample funds
2. relate the SUE investing measures to an extensive set of fund characteristics

- the higher fund return volatility for funds more actively trading on PEAD is due to a combination of two factors:
1. higher return volatility of stocks in the fund portfolios
2. the lack of diversification by the funds

significantly negative relation

Full transcript