Journal
JOURNAL OF ACCOUNTING & ECONOMICS
Volume 39, Issue 1, Pages 25-53Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.jacceco.2004.02.002
Keywords
post-earnings announcement drift; institutional investors; market efficiency
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We provide evidence that transient institutional investors (i.e., those actively trading to maximize short term profits) trade to exploit the post-earnings announcement drift (PEAD). We estimate that transient institutions' arbitrage generates an abnormal return of 5.1% (or 22% annualized) after transaction costs. In addition, their arbitrage trades accelerate the speed that stock prices reflect the implications of current earnings for future earnings. However, transient institutions trade less aggressively to exploit PEAD in firms with high transaction costs. Our results contribute to understanding the role of transient institutional investors in explaining the persistence of PEAD. (c) 2004 Elsevier B.V. All rights reserved.
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