Investor Perceptions of Earnings Processes and Post-announcement Drifts*
Publication in refereed journal

CUHK Authors
Author(s) no longer affiliated with CUHK


Times Cited
Web of Science0WOS source URL (as at 21/05/2020) Click here for the latest count
Altmetrics Information
.

Other information
AbstractIn this paper, we generalize Bernard and Thomas's [Journal of Accounting and Economics 13 (1990), 305]"delayed response" hypothesis as an explanation of post-earnings-announcement drifts. By applying a modified version of Beveridge and Nelson's technique of decomposing a time-series process of earnings into permanent and temporary components, we estimate the relative weight to proxy for investor perception on the temporary component of earnings. We then provide evidence that our measure of investor misperception explains post-announcement drifts after controlling for firm size and investor sophistication. These findings reinforce Bernard and Thomas's [Journal of Accounting and Economics 13 (1990), 305] conjecture that less weight is placed on temporary components of earnings than would be appropriate if earnings processes were well understood, although not zero as Bernard and Thomas implicitly assumed in their portfolio formation rule. Our results also complement Ball and Bartov's [Journal of Accounting and Economics 21 (1996), 319] result that investors partially, but not fully, adjust for serial correlation in seasonal differences.
All Author(s) ListLee BS, Rui OM
Journal nameAsia-Pacific Journal of Financial Studies
Year2011
Month2
Day1
Volume Number40
Issue Number1
PublisherWILEY-BLACKWELL
Pages1 - 36
ISSN2041-9945
LanguagesEnglish-United Kingdom
KeywordsG14; M41; Post-earnings-announcement drifts; Time-series analysis
Web of Science Subject CategoriesBusiness & Economics; Business, Finance; BUSINESS, FINANCE

Last updated on 2020-22-05 at 02:04