What is post earnings announcement drift?

The “Post-Earnings-Announcement Drift” refers to an anomaly in financial markets. It describes the drift of a firm’s stock price in the direction of the firm’s earnings surprise for an extended period of time.

What is post-earnings-announcement drift?

In financial economics and accounting research, post–earnings-announcement drift or PEAD (also named the SUE effect) is the tendency for a stock’s cumulative abnormal returns to drift in the direction of an earnings surprise for several weeks (even several months) following an earnings announcement.

Is post-earnings announcement drift contrary to the efficient market hypothesis?

Post-earnings announcement drift is contrary to the efficient market hypothesis. The efficient market hypothesis predicts that stock prices generally experience an instantaneous price adjustment after an earnings announcement. Simply put, stock prices often move upwards if investors anticipate a positive outcome.

How long does it take for stock price to drift upward?

For companies that report good quarterly earnings outsized price trends can drift upwards for a minimum of 60 days following the positive earnings announcement. Also, firms reporting poor earnings performance can have their stock price trend downwards for 60 days as well.