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Trading frictions and the Post-earnings-announcement drift

Author

Listed:
  • Fink, Josef
  • Palan, Stefan
  • Theissen, Erik

Abstract

We use laboratory experiments to analyze how the existence of trading frictions (a transaction fee and bans on short selling and margin buying) affects the occurrence and strength of the post-earnings-announcement drift. We find less trading activity and higher asset prices in the presence of frictions. While the initial price reaction to earnings announcements is weaker, the strength of the PEAD is not materially affected. Trading strategies aimed at exploiting the PEAD are less profitable in the presence of frictions.

Suggested Citation

  • Fink, Josef & Palan, Stefan & Theissen, Erik, 2024. "Trading frictions and the Post-earnings-announcement drift," Journal of Economics and Business, Elsevier, vol. 132(C).
    • Handle: RePEc:eee:jebusi:v:132:y:2024:i:c:s0148619524000584
    DOI: 10.1016/j.jeconbus.2024.106216
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    More about this item

    Keywords

    Post-earnings-announcement drift; Trading frictions; Experimental asset markets;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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