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Discussion of “Post-Earnings Announcement Drift and Market Participants' Information Processing Biases”

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  • Jacob K. Thomas

    (Columbia Business School)

Abstract

Liang (2003, this issue) hypothesizes that the predictable stock price drifts that occur after earnings earning announcements increase with (a) divergence in analyst beliefs and (b) the reliability of publicly reported quarterly earnings. Whereas the prior literature has generally hypothesized that drifts are caused by the inability of the stock market to fully appreciate predictable autocorrelation in seasonally-differenced quarterly earnings, this paper relies on cognitive biases proposed in the behavioral finance literature. While the results are consistent with these predictions, my discussion raises possible reasons why it may be premature to conclude that the cognitive biases discussed here cause drifts.

Suggested Citation

  • Jacob K. Thomas, 2003. "Discussion of “Post-Earnings Announcement Drift and Market Participants' Information Processing Biases”," Review of Accounting Studies, Springer, vol. 8(2), pages 347-353, June.
    • Handle: RePEc:spr:reaccs:v:8:y:2003:i:2:d:10.1023_a:1024429915810
    DOI: 10.1023/A:1024429915810
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    References listed on IDEAS

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    1. David Burgstahler & James Jiambalvo & Terry Shevlin, 2002. "Do Stock Prices Fully Reflect the Implications of Special Items for Future Earnings?," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 40(3), pages 585-612, June.
    2. Lee, Charles M. C., 1992. "Earnings news and small traders : An intraday analysis," Journal of Accounting and Economics, Elsevier, vol. 15(2-3), pages 265-302, August.
    3. Bernard, Victor L. & Thomas, Jacob K., 1990. "Evidence that stock prices do not fully reflect the implications of current earnings for future earnings," Journal of Accounting and Economics, Elsevier, vol. 13(4), pages 305-340, December.
    4. Brown, LD & Han, JCY, 2000. "Do stock prices fully reflect the implications of current earnings for future earnings for AR1 firms?," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 38(1), pages 149-164.
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