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Post–earnings–announcement Drift in the UK

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  • Weimin Liu
  • Norman Strong
  • Xinzhong Xu

Abstract

This paper fills a void in the market efficiency literature by testing for the presence of post–earnings–announcement drift in a non–US market. We test for drift using alternative earnings surprise measures based on: (i) the time–series of earnings; (ii) market prices; and (iii) analyst forecasts. Using each of the measures we find evidence of significant post–earnings–announcement drift, robust to alternative controls for risk and market microstructure effects. Using a one–dimensional analysis, the price–based measure of earnings surprise gives the strongest drift, and using a two–dimensional analysis the drift associated with the price–based measure almost subsumes drift associated with the other two measures. Our conclusion is that the UK stock market is inefficient with respect to publicly available corporate earnings information. This evidence provides out–of–sample confirmation of the post–earnings–announcement drift documented in the USA.

Suggested Citation

  • Weimin Liu & Norman Strong & Xinzhong Xu, 2003. "Post–earnings–announcement Drift in the UK," European Financial Management, European Financial Management Association, vol. 9(1), pages 89-116, March.
    • Handle: RePEc:bla:eufman:v:9:y:2003:i:1:p:89-116
    DOI: 10.1111/1468-036X.00209
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    References listed on IDEAS

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    Cited by:

    1. Qian Chen & Xiang Gao & Gangchen Liu, 2021. "Limited Attention and Post-Earnings Announcement Drift: Evidence from China s Stock Market," International Journal of Economics and Financial Issues, Econjournals, vol. 11(1), pages 1-17.
    2. Chudek, Mark & Truong, Cameron & Veeraraghavan, Madhu, 2011. "Is trading on earnings surprises a profitable strategy? Canadian evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(5), pages 832-850.
    3. Truong, Cameron, 2011. "Post-earnings announcement abnormal return in the Chinese equity market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(5), pages 637-661.
    4. Carlos Forner & Sonia Sanabria, 2010. "Post-Earnings Announcement Drift in Spain and Behavioural Finance Models," European Accounting Review, Taylor & Francis Journals, vol. 19(4), pages 775-815.
    5. Neszveda, Gábor & Csillag, Balázs, 2022. "Gyorsjelentés - lassú árfolyam? A gyorsjelentés utáni árfolyamsodródás vizsgálata a magyar részvénypiacon [Post-earnings announcement drift on the Hungarian stock market]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 801-824.
    6. William Forbes & George Giannopoulos, 2015. "Post-Earnings Announcement Drift in Greece," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 18(03), pages 1-20.
    7. Stavros Degiannakis & George Giannopoulos, 2009. "Is PEAD a consequence of the presence of the cognitive bias of self-attribution in investors' expectations regarding permanent earnings? Evidence from Athens Stock Exchange," International Journal of Computational Economics and Econometrics, Inderscience Enterprises Ltd, vol. 1(1), pages 89-110.
    8. Ahmed Bouteska & Boutheina Regaieg, 2017. "Earnings announcement effect on the Tunisian stock market," Cogent Business & Management, Taylor & Francis Journals, vol. 4(1), pages 1413733-141, January.
    9. Richardson, Scott & Tuna, Irem & Wysocki, Peter, 2010. "Accounting anomalies and fundamental analysis: A review of recent research advances," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 410-454, December.
    10. Taffler, Richard J. & Lu, Jeffrey & Kausar, Asad, 2004. "In denial? Stock market underreaction to going-concern audit report disclosures," Journal of Accounting and Economics, Elsevier, vol. 38(1), pages 263-296, December.
    11. Alessandro Carretta & Vincenzo Farina & Duccio Martelli & Franco Fiordelisi & Paola Schwizer, 2011. "The Impact of Corporate Governance Press News on Stock Market Returns," European Financial Management, European Financial Management Association, vol. 17(1), pages 100-119, January.
    12. Truong, Cameron, 2010. "Post earnings announcement drift and the roles of drift-enhanced factors in New Zealand," Pacific-Basin Finance Journal, Elsevier, vol. 18(2), pages 139-157, April.
    13. Zhang, Sijia & Gregoriou, Andros, 2020. "Post earnings announcement drift, liquidity and zero leverage firms: Evidence from the UK stock market," Journal of Business Research, Elsevier, vol. 116(C), pages 13-26.
    14. Carlos Forner & Sonia Sanabria & Joaquín Marhuenda, 2009. "Post-earnings announcement drift: Spanish evidence," Spanish Economic Review, Springer;Spanish Economic Association, vol. 11(3), pages 207-241, September.

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