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Trading Frictions and the Post-Earnings-Announcement Drift

Author

Listed:
  • Josef Fink

    (Institute of Banking and Finance, University of Graz)

  • Stefan Palan

    (Institute of Banking and Finance, University of Graz)

  • Erik Theissen

    (Finance Area, University of Mannheim)

Abstract

We use laboratory experiments to analyze how the existence of trading frictions (a transaction fee and a ban on short selling and margin buying) affects occurrence and strength of the post-earnings-announcement drift. We find lower trading activity and higher asset prices in the presence of frictions. While the initial price reaction to earnings announcements is weaker, the strength of the PEAD is not materially affected. Trading strategies aimed at exploiting the PEAD are less profitable in the presence of frictions.

Suggested Citation

  • Josef Fink & Stefan Palan & Erik Theissen, 2021. "Trading Frictions and the Post-Earnings-Announcement Drift," Working Paper Series, Social and Economic Sciences 2021-01, Faculty of Social and Economic Sciences, Karl-Franzens-University Graz.
    • Handle: RePEc:grz:wpsses:2021-01
    as

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    References listed on IDEAS

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