In order to explain the post-earnings-announcement drift, we construct a risk
factor related to unexpected earnings surprise, and propose a four-factor model by
adding this risk factor to the three-factor model of Fama and French (1993, 1995).
This earnings surprise risk factor provides a remarkable improvement in explaining
the post-earnings- announcement drift when included in addition to the three
factors of Fama and French. This improvement is shown by the fact that, after
adjusting raw returns for the four risk factors, the cumulative abnormal returns
over the 60 trading days subsequent to quarterly earnings announcements are
economically and statistically insignificant. Furthermore, except for the first two
days after the earnings announcement, the cumulative abnormal returns and the
arbitrage returns from our four-factor model are relatively stable over the testing
period and never significant on any day of the testing period. On the other hand,
the arbitrage returns from the other models increase over the 60-day testing
period. We argue that most of the post-earnings-announcement drift observed in
prior studies may be a result of using misspecified models and failing to
appropriately adjust raw returns for risk.
학술대회/행사
학술대회안내
[2003년 제 2차] A Multifactor Explanation of Post-Earnings- Announc
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2003-07-12