Post-Earnings-Announcement Drift: The Role of Revenue Surprises and Earnings Persistence

Abstract

This study explores an additional factor that is associated with differential levels of the post-earnings-announcement drift (henceforth drift)—the contemporaneous surprise in revenues. Consistent with prior evidence about greater persistence of revenues and greater noise caused by heterogeneity of expenses, this study shows that the earnings drift is stronger when the revenue surprise is in the same direction as the earnings surprise. Moreover, the study provides direct evidence that the drift is stronger when the earnings persistence is greater. The results are robust to various controls, including the proportions of stock held by institutional investors, trading liquidity, and arbitrage risk.