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PEAD and Illiquidity Premium in the Japanese Market

Author

Listed:
  • Akitada Kasahara

    (Graduate School of Economics, Osaka University)

  • Xin Zhong

    (Independent Researcher)

Abstract

This paper studies the robustness of post-earnings announcement drift (PEAD) using recent data from the Japanese market. PEAD is the tendency for stocks to drift in the direction of an earnings surprise. Many behavioral finance models have been developed for PEAD since it is hard to explain within risk-based rational asset pricing framework. Recent studies using US data argue that PEAD can be observed only among extremely illiquid and small stocks. This paper confirms that PEAD continues to exist in the Japanese market, and its effect becomes weaker when the liquidity and size are controlled. However, the effect cannot be explained by either liquidity or size premium with factor models.

Suggested Citation

  • Akitada Kasahara & Xin Zhong, 2022. "PEAD and Illiquidity Premium in the Japanese Market," Discussion Papers in Economics and Business 21-25, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:2125
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    File URL: http://www2.econ.osaka-u.ac.jp/econ_society/dp/2125.pdf
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    More about this item

    Keywords

    PEAD; liquidity premium;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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