"Post-Earnings Announcement Drift: Market Inefficiency or Research Design Biases?"

Abstract

The predictability of abnormal returns based on information contained in past earnings announcements is a statistically and economically significant anomaly. Neither is it illusory, nor is it an artifact of the experimental design. It may be a result of market inefficiency. Our results cannot rule out this explanation. However, we find that the magnitude of the post-earnings announcement effect is correlated with factors that proxy for the ex ante probability of the firm surviving to be part of the earnings surprise sample, and with determinants of the bid-ask spread.