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Post-earnings-announcement drift anomaly: The role of operating and non-operating income in the Taiwanese stock market

Author

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  • Hsueh-Tien Lu

Abstract

This paper examines the relationship between unexpected earnings components (i.e., unexpected operating and non-operating income) and post-earnings- announcement drift to determine whether both components contribute to the mispricing phenomenon. I find that both operating and non-operating income surprises explain the market’s underweighting of earnings surprises. However, the contribution of operating income surprises is significantly higher than non-operating income surprises. While the mispricing of components appears to be captured by post-earnings-announcement drift, the speed of price responses to unexpected non-operating income is faster than for unexpected operating income. Moreover, unexpected operating and non-operating income mispricing are distinct mispricing phenomena, and a joint hedge portfolio trading strategy generates excess abnormal returns when based only on an unexpected operating or non-operating strategy. JEL classification numbers: G14, M41

Suggested Citation

  • Hsueh-Tien Lu, 2019. "Post-earnings-announcement drift anomaly: The role of operating and non-operating income in the Taiwanese stock market," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 9(4), pages 1-7.
    • Handle: RePEc:spt:apfiba:v:9:y:2019:i:4:f:9_4_7
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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