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Post earnings announcement drift and the roles of drift-enhanced factors in New Zealand

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  • Truong, Cameron

Abstract

This study examines the profitability of trading on analyst forecast-based earnings surprises during the post announcement period in the New Zealand stock market over the period 1994 to 2008. The results show that a post earnings announcement drift (PEAD) anomaly exists in the New Zealand equity market. A hedge strategy of going long the top quintile of earnings surprise stocks and short the bottom quintile of earnings surprise stocks can generate more than 6% excess return in the 60Â days following the earnings announcement. I further test the association between PEAD and several control variables and find that PEAD is increasing in 1) earnings surprise defined relative to past earnings, and 2) the level of arbitrage risk. Interestingly, I do not find evidence of a positive relation between PEAD and revenue surprise after controlling for earnings surprise as documented in the United States (Jegadeesh and Livnat, 2006). There is also no evidence that the 2002 Disclosure Reform in the New Zealand Stock Exchange reduced the magnitude of PEAD.

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  • Truong, Cameron, 2010. "Post earnings announcement drift and the roles of drift-enhanced factors in New Zealand," Pacific-Basin Finance Journal, Elsevier, vol. 18(2), pages 139-157, April.
    • Handle: RePEc:eee:pacfin:v:18:y:2010:i:2:p:139-157
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    4. Truong, Cameron, 2011. "Post-earnings announcement abnormal return in the Chinese equity market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(5), pages 637-661.
    5. Sanjay Sehgal & Kumar Bijoy, 2015. "Stock Price Reactions to Earnings Announcements: Evidence from India," Vision, , vol. 19(1), pages 25-36, March.
    6. Neszveda, Gábor & Csillag, Balázs, 2022. "Gyorsjelentés - lassú árfolyam? A gyorsjelentés utáni árfolyamsodródás vizsgálata a magyar részvénypiacon [Post-earnings announcement drift on the Hungarian stock market]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 801-824.
    7. Nguyen, Nhut H. & Truong, Cameron, 2013. "The information content of stock markets around the world: A cultural explanation," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 1-29.
    8. Zhang, Sijia & Gregoriou, Andros, 2020. "Post earnings announcement drift, liquidity and zero leverage firms: Evidence from the UK stock market," Journal of Business Research, Elsevier, vol. 116(C), pages 13-26.
    9. Reza Tajaddini & Timothy Falcon Crack & Helen Roberts, 2015. "Price and Earnings Momentum, Transaction Costs, and an Innovative Practitioner Technique," International Review of Finance, International Review of Finance Ltd., vol. 15(4), pages 555-597, December.
    10. Chudek, Mark & Truong, Cameron & Veeraraghavan, Madhu, 2011. "Is trading on earnings surprises a profitable strategy? Canadian evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(5), pages 832-850.
    11. Avkiran, Necmi K. & Morita, Hiroshi, 2010. "Predicting Japanese bank stock performance with a composite relative efficiency metric: A new investment tool," Pacific-Basin Finance Journal, Elsevier, vol. 18(3), pages 254-271, June.
    12. Qian Chen & Xiang Gao & Gangchen Liu, 2021. "Limited Attention and Post-Earnings Announcement Drift: Evidence from China s Stock Market," International Journal of Economics and Financial Issues, Econjournals, vol. 11(1), pages 1-17.
    13. Xi Li & Mingyi Hung & Shiheng Wang, 2015. "Post-Earnings-Announcement Drift in Global Markets: Evidence from an Information Shock," HKUST IEMS Working Paper Series 2015-17, HKUST Institute for Emerging Market Studies, revised Mar 2015.

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