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The High-Volume Return Premium and Post-Earnings Announcement Drift

Authors: Lerman, Alina
Livnat, Joshua
Mendenhall, Richard R.
Keywords: Market efficiency;Trading Volume;High-Volume Return Premium;Post-earnings announcement Drift
Issue Date: Nov-2007
Series/Report no.: Joshua Livnat-07
Abstract: This paper investigates the relationship among trading volume around earnings announcements, earnings forecast errors, and subsequent returns. Prior research finds a positive relation between earnings announcement period trading volume and subsequent returns (the high-volume return premium) and between earnings forecast errors and subsequent returns (post-earnings announcement drift). We find that for a sample of firms followed by analysts these effects are complementary, i.e., each retains incremental ability to predict post-earnings announcement returns. Prior research provides two competing explanations for the high-volume return premium: changes in firm visibility versus differences in risk. We provide evidence that seems to rule out risk-based explanations while supporting the visibility hypothesis.
Appears in Collections:Accounting Working Papers

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