The persistence of firm-specific post-earnings announcement returns

Published in: Investment Analysts Journal
Volume 47, issue 1, 2018 , pages: 31–47
DOI: 10.1080/10293523.2017.1413151
Author(s): Dong Hyun SonCollege of Business, Korea, Dan PalmonDepartment of Accounting and Information System, New Jersey, Ari YezegelDepartment of Accountancy, USA


This paper examines whether estimates of post-earnings-announcement returns derived from the historical firm-specific relation between earnings and returns help predict future post-earnings-announcement returns. We find that firms with historically high post-earnings announcement returns continue to exhibit high post-earnings announcement returns following future earnings surprises. This finding stands after controlling for a series of confounding factors. A trading strategy which takes advantage of this firm-specific persistence improves returns by approximately 6.2 per cent, annually after accounting for transaction costs. These results are consistent with investors failing to incorporate past firm-specific experience when pricing current quarter earnings announcements.

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