Discussion of “Post-Earnings Announcement Drift and Market Participants' Information Processing Biases”

Discussion of “Post-Earnings Announcement Drift and Market Participants' Information Processing... Liang (2003, this issue) hypothesizes that the predictable stock price drifts that occur after earnings earning announcements increase with (a) divergence in analyst beliefs and (b) the reliability of publicly reported quarterly earnings. Whereas the prior literature has generally hypothesized that drifts are caused by the inability of the stock market to fully appreciate predictable autocorrelation in seasonally-differenced quarterly earnings, this paper relies on cognitive biases proposed in the behavioral finance literature. While the results are consistent with these predictions, my discussion raises possible reasons why it may be premature to conclude that the cognitive biases discussed here cause drifts. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Discussion of “Post-Earnings Announcement Drift and Market Participants' Information Processing Biases”

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2003 by Kluwer Academic Publishers
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1023/A:1024429915810
Publisher site
See Article on Publisher Site

Abstract

Liang (2003, this issue) hypothesizes that the predictable stock price drifts that occur after earnings earning announcements increase with (a) divergence in analyst beliefs and (b) the reliability of publicly reported quarterly earnings. Whereas the prior literature has generally hypothesized that drifts are caused by the inability of the stock market to fully appreciate predictable autocorrelation in seasonally-differenced quarterly earnings, this paper relies on cognitive biases proposed in the behavioral finance literature. While the results are consistent with these predictions, my discussion raises possible reasons why it may be premature to conclude that the cognitive biases discussed here cause drifts.

Journal

Review of Accounting StudiesSpringer Journals

Published: Oct 2, 2004

References

  • Do Stock Prices Fully Reflect the Implications of Special Items for Future Earnings?
    Burgstahler, D.; Jiambalvo, J.; Shevlin, T.

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