Title: The differential effect of directional unexpected earnings and post-earnings announcement drift behaviour

Authors: David L. Senteney, Hua Gao, Mohammad S. Bazaz

Addresses: Department of Accounting, Ohio University, Athens, OH 45701, USA. ' Department of Education, Ohio University, Athens, OH 45701, USA. ' Department of Accounting, Oakland University, Rochester, MI 48309, USA

Abstract: This research investigates whether the post-earnings announcement equity security price return drift is monotonic but (1) at a different rate than at the time of the earnings announcement, and (2) at different rates for positive unexpected earnings and negative unexpected earnings. Our results indicate that the post-earnings announcement equity security price return drift amplifies the equity security return reaction at the time of the earnings announcement for negative earnings changes. However, post-earnings announcement equity security price return drift reverses the equity security return reaction at the time of the earnings announcement for positive unexpected earnings. Implications of our research results for equity security return drift, reversal, and volatility are that equity security prices under-react at the time of the earnings announcement to negative unexpected earnings and over-react at the time of the earnings announcement to positive unexpected earnings.

Keywords: post earnings announcement drift; market efficiency; investors| expectations; trading volume; equity security returns; unexpected earnings.

DOI: 10.1504/IJAAPE.2004.004763

International Journal of Accounting, Auditing and Performance Evaluation, 2004 Vol.1 No.2, pp.143 - 163

Available online: 28 Jun 2004 *

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