The differential effect of directional unexpected earnings and post-earnings announcement drift behaviour

This research investigates whether the post-earnings announcement equity security price return drift is monotonic but (1) at a different rate than at the time of the earnings announcement, and (2) at different rates for positive unexpected earnings and negative unexpected earnings. Our results indicate that the post-earnings announcement equity security price return drift amplifies the equity security return reaction at the time of the earnings announcement for negative earnings changes. However, post-earnings announcement equity security price return drift reverses the equity security return reaction at the time of the earnings announcement for positive unexpected earnings. Implications of our research results for equity security return drift, reversal, and volatility are that equity security prices under-react at the time of the earnings announcement to negative unexpected earnings and over-react at the time of the earnings announcement to positive unexpected earnings.