IDEAS home Printed from https://ideas.repec.org/a/eee/quaeco/v91y2023icp15-24.html
   My bibliography  Save this article

Seasonal patterns of earnings releases and post-earnings announcement drift

Author

Listed:
  • Bond, Shaun
  • Wu, Wentao
  • Zheng, Suyan

Abstract

In line with SEC regulations, U.S. firms tend to announce their earnings in specific weeks, resulting in clustered earnings releases. Our study examines whether this pattern of earnings releases leads to delayed market responses. We observe that firms announcing earnings in the two busy weeks of each season exhibit a stronger post-earnings announcement drift (PEAD) compared to those in non-busy weeks. Additionally, we find that firms with fewer institutional investors, financial analysts, and smaller sizes are more susceptible to market under-reaction. These findings support the hypothesis that under-reaction plays a role in the occurrence of PEAD. We attribute this under-reaction mainly to investors' limited capacity to promptly process a large volume of earnings news simultaneously.

Suggested Citation

  • Bond, Shaun & Wu, Wentao & Zheng, Suyan, 2023. "Seasonal patterns of earnings releases and post-earnings announcement drift," The Quarterly Review of Economics and Finance, Elsevier, vol. 91(C), pages 15-24.
    • Handle: RePEc:eee:quaeco:v:91:y:2023:i:c:p:15-24
    DOI: 10.1016/j.qref.2023.07.003
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1062976923000777
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.qref.2023.07.003?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Holden, Craig W & Subrahmanyam, Avanidhar, 1992. "Long-Lived Private Information and Imperfect Competition," Journal of Finance, American Finance Association, vol. 47(1), pages 247-270, March.
    2. Kent Daniel & David Hirshleifer & Avanidhar Subrahmanyam, 1998. "Investor Psychology and Security Market Under- and Overreactions," Journal of Finance, American Finance Association, vol. 53(6), pages 1839-1885, December.
    3. Kewei Hou & Chen Xue & Lu Zhang, 2015. "Editor's Choice Digesting Anomalies: An Investment Approach," Review of Financial Studies, Society for Financial Studies, vol. 28(3), pages 650-705.
    4. Dennis Y. Chung & Karel Hrazdil, 2011. "Market Efficiency and the Post†Earnings Announcement Drift," Contemporary Accounting Research, John Wiley & Sons, vol. 28(3), pages 926-956, September.
    5. Stefano Dellavigna & Joshua M. Pollet, 2009. "Investor Inattention and Friday Earnings Announcements," Journal of Finance, American Finance Association, vol. 64(2), pages 709-749, April.
    6. So, Eric C. & Wang, Sean, 2014. "News-driven return reversals: Liquidity provision ahead of earnings announcements," Journal of Financial Economics, Elsevier, vol. 114(1), pages 20-35.
    7. Lin, Xiaoji & Zhang, Lu, 2013. "The investment manifesto," Journal of Monetary Economics, Elsevier, vol. 60(3), pages 351-366.
    8. Chan, Louis K C & Jegadeesh, Narasimhan & Lakonishok, Josef, 1996. "Momentum Strategies," Journal of Finance, American Finance Association, vol. 51(5), pages 1681-1713, December.
    9. David Hirshleifer & Sonya Seongyeon Lim & Siew Hong Teoh, 2009. "Driven to Distraction: Extraneous Events and Underreaction to Earnings News," Journal of Finance, American Finance Association, vol. 64(5), pages 2289-2325, October.
    10. Bernard, Vl & Thomas, Jk, 1989. "Post-Earnings-Announcement Drift - Delayed Price Response Or Risk Premium," Journal of Accounting Research, Wiley Blackwell, vol. 27, pages 1-36.
    11. Robert Novy-Marx, 2015. "Fundamentally, Momentum is Fundamental Momentum," NBER Working Papers 20984, National Bureau of Economic Research, Inc.
    12. Anat R. Admati, Paul Pfleiderer, 1988. "A Theory of Intraday Patterns: Volume and Price Variability," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 3-40.
    13. Harrison Hong & Jeremy C. Stein, 1999. "A Unified Theory of Underreaction, Momentum Trading, and Overreaction in Asset Markets," Journal of Finance, American Finance Association, vol. 54(6), pages 2143-2184, December.
    14. Xavier Giroud & Holger M. Mueller, 2011. "Corporate Governance, Product Market Competition, and Equity Prices," Journal of Finance, American Finance Association, vol. 66(2), pages 563-600, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kent Daniel & David Hirshleifer & Lin Sun, 2020. "Short- and Long-Horizon Behavioral Factors [Financial intermediaries and the cross-section of asset returns]," Review of Financial Studies, Society for Financial Studies, vol. 33(4), pages 1673-1736.
    2. Jiang, George J. & Zhu, Kevin X., 2017. "Information Shocks and Short-Term Market Underreaction," Journal of Financial Economics, Elsevier, vol. 124(1), pages 43-64.
    3. Gong, Aibo & Ke, Shaowei & Qiu, Yawen & Shen, Rui, 2022. "Robust pricing under strategic trading," Journal of Economic Theory, Elsevier, vol. 199(C).
    4. Savor, Pavel G., 2012. "Stock returns after major price shocks: The impact of information," Journal of Financial Economics, Elsevier, vol. 106(3), pages 635-659.
    5. Li, Zhuo & Wen, Fenghua & Huang, Zhijian James, 2023. "Asymmetric response to earnings news across different sentiment states: The role of cognitive dissonance," Journal of Corporate Finance, Elsevier, vol. 78(C).
    6. Azevedo, Vitor, 2023. "Analysts’ underreaction and momentum strategies," Journal of Economic Dynamics and Control, Elsevier, vol. 146(C).
    7. Josef Fink, 2020. "A Review of the Post-Earnings-Announcement Drift," Working Paper Series, Social and Economic Sciences 2020-04, Faculty of Social and Economic Sciences, Karl-Franzens-University Graz.
    8. Anastassia Fedyk, 2018. "Disagreement after News: Gradual Information Diffusion or Differences of Opinion?," 2018 Meeting Papers 1095, Society for Economic Dynamics.
    9. Seok, Sang Ik & Cho, Hoon & Ryu, Doojin, 2019. "Firm-specific investor sentiment and the stock market response to earnings news," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 221-240.
    10. David Hirshleife, 2015. "Behavioral Finance," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 133-159, December.
    11. Li, Kai, 2021. "Nonlinear effect of sentiment on momentum," Journal of Economic Dynamics and Control, Elsevier, vol. 133(C).
    12. Sadka, Ronnie, 2006. "Momentum and post-earnings-announcement drift anomalies: The role of liquidity risk," Journal of Financial Economics, Elsevier, vol. 80(2), pages 309-349, May.
    13. Löffler, Gunter & Norden, Lars & Rieber, Alexander, 2021. "Negative news and the stock market impact of tone in rating reports," Journal of Banking & Finance, Elsevier, vol. 133(C).
    14. Lee, Charles M.C. & Sun, Stephen Teng & Wang, Rongfei & Zhang, Ran, 2019. "Technological links and predictable returns," Journal of Financial Economics, Elsevier, vol. 132(3), pages 76-96.
    15. Lin, Chaonan & Ko, Kuan-Cheng & Chen, Yu-Lin & Chu, Hsiang-Hui, 2016. "Information discreteness, price limits and earnings momentum," Pacific-Basin Finance Journal, Elsevier, vol. 37(C), pages 1-22.
    16. Lu Zhang, 2017. "The Investment CAPM," European Financial Management, European Financial Management Association, vol. 23(4), pages 545-603, September.
    17. Blankespoor, Elizabeth & deHaan, Ed & Marinovic, Iván, 2020. "Disclosure processing costs, investors’ information choice, and equity market outcomes: A review," Journal of Accounting and Economics, Elsevier, vol. 70(2).
    18. Doron Avramov & Guy Kaplanski & Avanidhar Subrahmanyam, 2022. "Postfundamentals Price Drift in Capital Markets: A Regression Regularization Perspective," Management Science, INFORMS, vol. 68(10), pages 7658-7681, October.
    19. Feng Dong, 2020. "Noise-driven abnormal institutional investor attention," Journal of Asset Management, Palgrave Macmillan, vol. 21(5), pages 467-488, September.
    20. Feng Dong, 0. "Noise-driven abnormal institutional investor attention," Journal of Asset Management, Palgrave Macmillan, vol. 0, pages 1-22.

    More about this item

    Keywords

    Timing; Earnings announcements; Post-earnings announcement drift; Investor attention;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:quaeco:v:91:y:2023:i:c:p:15-24. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620167 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.