This paper examines the cross-sectional implications of the inflation illusion hypothesis for the post-earnings-announcement drift. The inflation illusion hypothesis, which was proposed by Modigliani and Cohn (1979), suggests that stock market investors fail to incorporate inflation in...

This paper examines whether earnings momentum and price momentum are related. Both in time-series as well as in cross-sectional asset pricing tests, we find that price momentum is captured by the systematic component of earnings momentum. The predictive power of past returns is subsumed by a...

We construct an earnings based zero-investment portfolio that is related to the business cycle. The portfolio, PMN, is long in stocks that have had high earnings changes in the last quarter and is short in stocks that have had low earnings changes in the last quarter. PMN is related to future...

In recent years there has been a dramatic growth in academic interest in the predictability of asset returns based on past history. A growing number of researchers argue that time-series patterns in returns are due to investor irrationality, and thus can be translated into abnormal profits....

The post-earnings-announcement-drift is a long standing anomaly that is in conflict with market efficiency. This paper documents that the post-earnings-announcement drift occurs mainly in the highly illiquid stocks. A trading strategy that goes long the high earnings surprise stocks and short...

In this paper, we analyze cross-sectional heterogeneity in the time-series variation of liquidity. Average daily changes in liquidity exhibit significant heterogeneity in the cross-section; the liquidity of small firms varies more on a daily basis than that of large firms. A steady increase in...

The post-earnings-announcement drift is a longstanding anomaly that conflicts with market efficiency. This study documents that the post-earnings-announcement drift occurs mainly in highly illiquid stocks. A trading strategy that goes long high-earnings-surprise stocks and short...

We quantify the relative importance of earnings announcements in providing new information to the share market, using the r-squared in a regression of securities' calendar year returns on their four quarterly earnings announcement window returns. The r-squared, which averages approximately five...

Financial reporting around the time of IPOs is consistent with listed firms reporting more conservatively than previously as private firms, consistent with the results in Ball and Shivakumar (2005). We hypothesize that IPO firms supply the higher quality financial reports demanded by public...

Several prior studies have shown that cash flows have significantly greater impact on stock prices than accruals. We examine the implications of these findings for the post-earnings-announcement-drift anomaly. We argue that, if investors under-react to earnings news, then the larger price impact...