IDEAS home Printed from https://ideas.repec.org/a/taf/euract/v19y2010i4p775-815.html
   My bibliography  Save this article

Post-Earnings Announcement Drift in Spain and Behavioural Finance Models

Author

Listed:
  • Carlos Forner
  • Sonia Sanabria

Abstract

Our study examines whether behavioural theories can explain post-earnings announcement drift (i.e. earnings momentum) in the Spanish market. In particular, we test models proposed by Barberis et al. (Journal of Financial Economics, 49, pp. 307-343, 1998), Daniel et al. (Journal of Finance, 53(6), pp. 1839-1885, 1998) and Hong and Stein (Journal of Finance, 54(6), pp. 2143-2184, 1999). Each of these behavioural models draws on two premises - cognitive biases and limits to arbitrage - that we assume will vary with a given country's cultural and institutional features. Therefore, we must exercise caution when extrapolating the favourable results observed in the US market to markets outside of the USA. Our results provide little evidence in support of the hypothesis used to test whether these models can indeed explain the earnings momentum anomaly in the Spanish market. We believe some characteristics of the Spanish market, such as its lower score on the Individualism Index, lower levels of investor protection and code-law-based legal system, may explain why our results differ from those obtained in the USA.

Suggested Citation

  • Carlos Forner & Sonia Sanabria, 2010. "Post-Earnings Announcement Drift in Spain and Behavioural Finance Models," European Accounting Review, Taylor & Francis Journals, vol. 19(4), pages 775-815.
    • Handle: RePEc:taf:euract:v:19:y:2010:i:4:p:775-815
    DOI: 10.1080/09638180903503978
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/09638180903503978
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/09638180903503978?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Wayne E. Ferson & Campbell R. Harvey, 1999. "Conditioning Variables and the Cross Section of Stock Returns," Journal of Finance, American Finance Association, vol. 54(4), pages 1325-1360, August.
    2. Harrison Hong & Terence Lim & Jeremy C. Stein, 2000. "Bad News Travels Slowly: Size, Analyst Coverage, and the Profitability of Momentum Strategies," Journal of Finance, American Finance Association, vol. 55(1), pages 265-295, February.
    3. Daniel Perez & Vicente Salas-Fumas & Jesus Saurina, 2008. "Earnings and Capital Management in Alternative Loan Loss Provision Regulatory Regimes," European Accounting Review, Taylor & Francis Journals, vol. 17(3), pages 423-445.
    4. Fama, Eugene F., 1998. "Market efficiency, long-term returns, and behavioral finance," Journal of Financial Economics, Elsevier, vol. 49(3), pages 283-306, September.
    5. X. Frank Zhang, 2006. "Information Uncertainty and Stock Returns," Journal of Finance, American Finance Association, vol. 61(1), pages 105-137, February.
    6. Bernard, Victor L. & Thomas, Jacob K., 1990. "Evidence that stock prices do not fully reflect the implications of current earnings for future earnings," Journal of Accounting and Economics, Elsevier, vol. 13(4), pages 305-340, December.
    7. Blume, Marshall E. & Stambaugh, Robert F., 1983. "Biases in computed returns : An application to the size effect," Journal of Financial Economics, Elsevier, vol. 12(3), pages 387-404, November.
    8. Graham, John R. & Harvey, Campbell R. & Rajgopal, Shiva, 2005. "The economic implications of corporate financial reporting," Journal of Accounting and Economics, Elsevier, vol. 40(1-3), pages 3-73, December.
    9. Kothari, S. P., 2001. "Capital markets research in accounting," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 105-231, September.
    10. repec:bla:jfinan:v:43:y:1988:i:3:p:617-37 is not listed on IDEAS
    11. Ball, Ray & Bartov, Eli, 1996. "How naive is the stock market's use of earnings information?," Journal of Accounting and Economics, Elsevier, vol. 21(3), pages 319-337, June.
    12. Weimin Liu & Norman Strong & Xinzhong Xu, 2003. "Post–earnings–announcement Drift in the UK," European Financial Management, European Financial Management Association, vol. 9(1), pages 89-116, March.
    13. Maria Jose Arcas Pellicer & William Page Rees, 1999. "Regularities in the equity price response to earnings announcements in Spain," European Accounting Review, Taylor & Francis Journals, vol. 8(4), pages 585-607.
    14. repec:bla:jfinan:v:53:y:1998:i:6:p:1839-1885 is not listed on IDEAS
    15. Grossman, S.J. & Miller, M.H., 1988. "Liquidity And Market Structure," Papers 88, Princeton, Department of Economics - Financial Research Center.
    16. Chordia, Tarun & Shivakumar, Lakshmanan, 2006. "Earnings and price momentum," Journal of Financial Economics, Elsevier, vol. 80(3), pages 627-656, June.
    17. Merton, Robert C, 1987. "A Simple Model of Capital Market Equilibrium with Incomplete Information," Journal of Finance, American Finance Association, vol. 42(3), pages 483-510, July.
    18. Andreas Dische, 2002. "Dispersion in Analyst Forecasts and the Profitability of Earnings Momentum Strategies," European Financial Management, European Financial Management Association, vol. 8(2), pages 211-228, June.
    19. Charles M.C. Lee & Bhaskaran Swaminathan, 2000. "Price Momentum and Trading Volume," Journal of Finance, American Finance Association, vol. 55(5), pages 2017-2069, October.
    20. Mikhail, Michael B. & Walther, Beverly R. & Willis, Richard H., 2003. "The effect of experience on security analyst underreaction," Journal of Accounting and Economics, Elsevier, vol. 35(1), pages 101-116, April.
    21. Harrison Hong & Jeremy C. Stein, 1999. "A Unified Theory of Underreaction, Momentum Trading, and Overreaction in Asset Markets," Journal of Finance, American Finance Association, vol. 54(6), pages 2143-2184, December.
    22. Naomi Soderstrom & Kevin Jialin Sun, 2007. "IFRS Adoption and Accounting Quality: A Review," European Accounting Review, Taylor & Francis Journals, vol. 16(4), pages 675-702.
    23. Andy C.W. Chui & Sheridan Titman & K.C. John Wei, 2010. "Individualism and Momentum around the World," Journal of Finance, American Finance Association, vol. 65(1), pages 361-392, February.
    24. Barber, Brad M. & Lyon, John D., 1997. "Detecting long-run abnormal stock returns: The empirical power and specification of test statistics," Journal of Financial Economics, Elsevier, vol. 43(3), pages 341-372, March.
    25. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    26. Ball, R & Brown, P, 1968. "Empirical Evaluation Of Accounting Income Numbers," Journal of Accounting Research, Wiley Blackwell, vol. 6(2), pages 159-178.
    27. John D. Lyon & Brad M. Barber & Chih‐Ling Tsai, 1999. "Improved Methods for Tests of Long‐Run Abnormal Stock Returns," Journal of Finance, American Finance Association, vol. 54(1), pages 165-201, February.
    28. Kalok Chan & Vicentiu Covrig & Lilian Ng, 2005. "What Determines the Domestic Bias and Foreign Bias? Evidence from Mutual Fund Equity Allocations Worldwide," Journal of Finance, American Finance Association, vol. 60(3), pages 1495-1534, June.
    29. Norman Macintosh, 2009. "Accounting and the Truth of Earnings Reports: Philosophical Considerations," European Accounting Review, Taylor & Francis Journals, vol. 18(1), pages 141-175.
    30. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-636, May-June.
    31. Leonard C. Soffer & Thomas Lys, 1999. "Post†Earnings Announcement Drift and the Dissemination of Predictable Information," Contemporary Accounting Research, John Wiley & Sons, vol. 16(2), pages 305-331, June.
    32. repec:bla:jfinan:v:53:y:1998:i:1:p:267-284 is not listed on IDEAS
    33. Chan, Louis K C & Jegadeesh, Narasimhan & Lakonishok, Josef, 1996. "Momentum Strategies," Journal of Finance, American Finance Association, vol. 51(5), pages 1681-1713, December.
    34. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. "Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.
    2. 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.
    3. Papanastasopoulos, Georgios A. & Tsiritakis, Emmanuel, 2015. "The accrual anomaly in Europe: The role of accounting distortions," International Review of Financial Analysis, Elsevier, vol. 41(C), pages 176-185.
    4. Pascal Barneto & Georges Gregorio, 2011. "Normes IFRS et mesure de la performance. Étude comparative auprès des établissements bancaires européens," Post-Print hal-00646454, HAL.
    5. Kariofyllas, Spyridon & Philippas, Dionisis & Siriopoulos, Costas, 2017. "Cognitive biases in investors' behaviour under stress: Evidence from the London Stock Exchange," International Review of Financial Analysis, Elsevier, vol. 54(C), pages 54-62.
    6. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Daniel, Kent & Hirshleifer, David & Teoh, Siew Hong, 2002. "Investor psychology in capital markets: evidence and policy implications," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 139-209, January.
    2. repec:grz:wpsses:2020-04 is not listed on IDEAS
    3. Mao, Mike Qinghao & Wei, K.C. John, 2014. "Price and earnings momentum: An explanation using return decomposition," Journal of Empirical Finance, Elsevier, vol. 28(C), pages 332-351.
    4. Kothari, S. P., 2001. "Capital markets research in accounting," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 105-231, September.
    5. Fink, Josef, 2021. "A review of the Post-Earnings-Announcement Drift," Journal of Behavioral and Experimental Finance, Elsevier, vol. 29(C).
    6. Adam Zaremba & Jacob Koby Shemer, 2018. "Price-Based Investment Strategies," Springer Books, Springer, number 978-3-319-91530-2, June.
    7. Lin, Chaonan & Ko, Kuan-Cheng & Chen, Yu-Lin & Chu, Hsiang-Hui, 2016. "Information discreteness, price limits and earnings momentum," Pacific-Basin Finance Journal, Elsevier, vol. 37(C), pages 1-22.
    8. Amit Goyal, 2012. "Empirical cross-sectional asset pricing: a survey," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 26(1), pages 3-38, March.
    9. Azevedo, Vitor, 2023. "Analysts’ underreaction and momentum strategies," Journal of Economic Dynamics and Control, Elsevier, vol. 146(C).
    10. Carlos Forner & Sonia Sanabria & Joaquín Marhuenda, 2009. "Post-earnings announcement drift: Spanish evidence," Spanish Economic Review, Springer;Spanish Economic Association, vol. 11(3), pages 207-241, September.
    11. Dionysia Dionysiou, 2015. "Choosing Among Alternative Long-Run Event-Study Techniques," Journal of Economic Surveys, Wiley Blackwell, vol. 29(1), pages 158-198, February.
    12. S. Price & Dean Gatzlaff & C. Sirmans, 2012. "Information Uncertainty and the Post-Earnings-Announcement Drift Anomaly: Insights from REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 44(1), pages 250-274, January.
    13. Lu Zhang, 2017. "The Investment CAPM," European Financial Management, European Financial Management Association, vol. 23(4), pages 545-603, September.
    14. Yuan Wu & Taufiq Choudhry, 2018. "Information Uncertainty and Momentum Phenomenon Amidst Market Swings: Evidence From the Chinese Class A Share Market," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 25(2), pages 111-136, June.
    15. Hong-Yi Chen & Sheng-Syan Chen & Chin-Wen Hsin & Cheng Few Lee, 2020. "Does Revenue Momentum Drive or Ride Earnings or Price Momentum?," World Scientific Book Chapters, in: Cheng Few Lee & John C Lee (ed.), HANDBOOK OF FINANCIAL ECONOMETRICS, MATHEMATICS, STATISTICS, AND MACHINE LEARNING, chapter 94, pages 3263-3318, World Scientific Publishing Co. Pte. Ltd..
    16. David Hirshleifer, 2001. "Investor Psychology and Asset Pricing," Journal of Finance, American Finance Association, vol. 56(4), pages 1533-1597, August.
    17. Savor, Pavel G., 2012. "Stock returns after major price shocks: The impact of information," Journal of Financial Economics, Elsevier, vol. 106(3), pages 635-659.
    18. Martin H. Schmidt, 2017. "Trading strategies based on past returns: evidence from Germany," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 31(2), pages 201-256, May.
    19. Sadka, Ronnie, 2006. "Momentum and post-earnings-announcement drift anomalies: The role of liquidity risk," Journal of Financial Economics, Elsevier, vol. 80(2), pages 309-349, May.
    20. John A. Doukas & Phillip J. McKnight, 2005. "European Momentum Strategies, Information Diffusion, and Investor Conservatism," European Financial Management, European Financial Management Association, vol. 11(3), pages 313-338, June.
    21. Vega, Clara, 2006. "Stock price reaction to public and private information," Journal of Financial Economics, Elsevier, vol. 82(1), pages 103-133, October.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:euract:v:19:y:2010:i:4:p:775-815. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/REAR20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.