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Market Uncertainty and Sentiment, and the Post-Earnings Announcement Drift

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Abstract

The post-earnings announcement drift (PEAD) was first identified over 40 years ago and seems to be as much alive today as it ever was. There have been numerous attempts to explain its continued existence. In this paper we provide evidence to support a new explanation: the PEAD is very much a reflection of the level of market uncertainty and sentiment that prevails during the post-announcement period. The finding that uncertainty plays a role in explaining how investors respond to information suggests that it should be included as a factor in our pricing models while the fact that market sentiment also has a role is another instance of the importance of human behaviour in establishing prices.

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  • Ron Bird & Daniel Choi & Danny Yeung, 2011. "Market Uncertainty and Sentiment, and the Post-Earnings Announcement Drift," Working Paper Series 15, The Paul Woolley Centre for Capital Market Dysfunctionality, University of Technology, Sydney.
  • Handle: RePEc:uts:pwcwps:15
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    Cited by:

    1. Nicole Thorne Jenkins & Michael D. Kimbrough & Juan Wang, 2016. "The extent of informational efficiency in the credit default swap market: evidence from post-earnings announcement returns," Review of Quantitative Finance and Accounting, Springer, vol. 46(4), pages 725-761, May.
    2. Qi Zhang & Charlie Cai & Kevin Keasey, 2014. "The profitability, costs and systematic risk of the post-earnings-announcement-drift trading strategy," Review of Quantitative Finance and Accounting, Springer, vol. 43(3), pages 605-625, October.
    3. Ron Bird & Krishna Reddy & Danny Yeung, 2014. "The relationship between uncertainty and the market reaction to information: Is it influenced by stock-specific characteristics?," International Journal of Behavioural Accounting and Finance, Inderscience Enterprises Ltd, vol. 4(2), pages 113-132.
    4. Ray R. Sturm, 2016. "Is There a Presidential Election Cycle in Firm Financials?," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(02), pages 1-18, June.
    5. Corbet, Shaen & Dowling, Michael & Cummins, Mark, 2015. "Analyst recommendations and volatility in a rising, falling, and crisis equity market," Finance Research Letters, Elsevier, vol. 15(C), pages 187-194.

    More about this item

    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
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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