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Post-Earnings Announcement Drift: The Role of Earnings Volatility

Received: 10 March 2015     Accepted: 19 March 2015     Published: 28 March 2015
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Abstract

The study reported here consisted of examining the market’s reactions to the volatility effect on time series correlations of earnings in a post-earnings announcement drift context. Sample in this study comprises of 295 Canadian firms and covers 2006-2011 period. Firstly, our results show that earnings volatility is inversely related to earnings persistence (under the AR(1) and the Foster model assumption). Secondly, our findings confirm the aggravated negative effect of earnings volatility on seasonal unexpected earnings persistence. Finally, following Mishkin’s (1983) method of testing market efficiency, this study supports that capital market recognizes the earnings volatility effect on earnings persistence. Our results contribute to understanding the role of earnings volatility in explaining the persistence of PEAD.

Published in Journal of Finance and Accounting (Volume 3, Issue 3)
DOI 10.11648/j.jfa.20150303.11
Page(s) 35-41
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2015. Published by Science Publishing Group

Keywords

Earnings-Announcement Drift, Earnings Volatility, Standardized Unexpected Earnings

References
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[3] Bandyopadhyay S., Huang A. and Wirjanto T., (2011), « Does Income Smoothing Really Create Value ?», University of Waterloo, Working Paper.
[4] Bartov E. (1992), « Patterns in unexpected earnings as an explanation for post-announcement drift », The Accounting Review, Vol .27, n°3, pp.610–622.
[5] Bernard V.L. and Thomas J.K. (1990), “Evidence That Stock Prices Do Not Fully Reflect the Implications of Current Earnings for Future Earnings”, Journal of Accounting and Economics, Vol.13, n°4, pp. 305-340.
[6] Bhushan R. (1994), « An informational efficiency perspective on the post-earnings announcement drift », Journal of Accounting and Economics, Vol.18, pp.45-65.
[7] Brown L.D. (1993), “Earnings forecasting research: its implications for capital markets research”, International Journal of Forecasting, Vol. 9, pp. 295–320.
[8] Cao S.S. and Narayanamoorthy G.S. (2012), « Earnings volatility, Post-Earnings Anouncement Drift and Trading Frictions», Journal of Accounting Research, Vol.50, n°1, pp.41-74.
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[10] Chen C., Huang A.G. and Jha R. (2008), « Trends in Earnings Volatility, Earnings Quality and Idiosyncratic Return Volatility: Managerial Opportunism or Economic Activity », School of Accounting and Finance, University of Waterloo.
[11] Dichev I.D. and Tang V.W., (2009), “Earnings volatility and earnings predictability”, Journal of Accounting and Economics, Vol.47, pp.160-181.
[12] Frankel. and Litov. (2009), « Earnings Persistence », Journal of Accounting and Economics, Vol.47, pp.182-190.
[13] Foster G. (1977), “Quarterly accounting data: time-series properties and predictive-ability
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[17] Hamzavi M.A. and Aflatooni A. (2011), « Earnings Smoothing and Earnings Predictability », Business Intelligence Journal, pp. 187-201.
[18] Khodadadi V., Tamjidi N., Fazeli Y.S. and Hushmandi K.B. (2012), « Earnings Predictability and its Components Volatility », International Reserch Journal of Finance and Economics, Vol.86, pp.72-85.
[19] Minton B., Schrand C. and Walther B. (2002), « The Role of Volatility in Forecasting”, Review of Accounting Studies, Vol. 7, pp. 195–215.
[20] Narayanamoorthy G. (2006), « Conservatism and cross-sectional variation in the post-earnings announcement drift », Journal of Accounting Research, Vol.44, n°3, pp.769–789.
[21] Rangan S. and Sloan R.G. (1998), « Implications of the integral approach to quarterly reporting for the post-earnings-announcement drift », The Accounting Review, Vol.73, n°3, pp.353–371.
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  • APA Style

    Ben Mhamed Yosra, Jilani Fawzi. (2015). Post-Earnings Announcement Drift: The Role of Earnings Volatility. Journal of Finance and Accounting, 3(3), 35-41. https://doi.org/10.11648/j.jfa.20150303.11

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    ACS Style

    Ben Mhamed Yosra; Jilani Fawzi. Post-Earnings Announcement Drift: The Role of Earnings Volatility. J. Finance Account. 2015, 3(3), 35-41. doi: 10.11648/j.jfa.20150303.11

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    AMA Style

    Ben Mhamed Yosra, Jilani Fawzi. Post-Earnings Announcement Drift: The Role of Earnings Volatility. J Finance Account. 2015;3(3):35-41. doi: 10.11648/j.jfa.20150303.11

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  • @article{10.11648/j.jfa.20150303.11,
      author = {Ben Mhamed Yosra and Jilani Fawzi},
      title = {Post-Earnings Announcement Drift: The Role of Earnings Volatility},
      journal = {Journal of Finance and Accounting},
      volume = {3},
      number = {3},
      pages = {35-41},
      doi = {10.11648/j.jfa.20150303.11},
      url = {https://doi.org/10.11648/j.jfa.20150303.11},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jfa.20150303.11},
      abstract = {The study reported here consisted of examining the market’s reactions to the volatility effect on time series correlations of earnings in a post-earnings announcement drift context. Sample in this study comprises of 295 Canadian firms and covers 2006-2011 period. Firstly, our results show that earnings volatility is inversely related to earnings persistence (under the AR(1) and the Foster model assumption). Secondly, our findings confirm the aggravated negative effect of earnings volatility on seasonal unexpected earnings persistence. Finally, following Mishkin’s (1983) method of testing market efficiency, this study supports that capital market recognizes the earnings volatility effect on earnings persistence. Our results contribute to understanding the role of earnings volatility in explaining the persistence of PEAD.},
     year = {2015}
    }
    

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    T1  - Post-Earnings Announcement Drift: The Role of Earnings Volatility
    AU  - Ben Mhamed Yosra
    AU  - Jilani Fawzi
    Y1  - 2015/03/28
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    T2  - Journal of Finance and Accounting
    JF  - Journal of Finance and Accounting
    JO  - Journal of Finance and Accounting
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    PB  - Science Publishing Group
    SN  - 2330-7323
    UR  - https://doi.org/10.11648/j.jfa.20150303.11
    AB  - The study reported here consisted of examining the market’s reactions to the volatility effect on time series correlations of earnings in a post-earnings announcement drift context. Sample in this study comprises of 295 Canadian firms and covers 2006-2011 period. Firstly, our results show that earnings volatility is inversely related to earnings persistence (under the AR(1) and the Foster model assumption). Secondly, our findings confirm the aggravated negative effect of earnings volatility on seasonal unexpected earnings persistence. Finally, following Mishkin’s (1983) method of testing market efficiency, this study supports that capital market recognizes the earnings volatility effect on earnings persistence. Our results contribute to understanding the role of earnings volatility in explaining the persistence of PEAD.
    VL  - 3
    IS  - 3
    ER  - 

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Author Information
  • Department of finance, Faculty of Economic sciences and Management of Tunis, University of Tunis El Manar, Tunisia

  • Department of finance, Faculty of Economic sciences and Management of Tunis, University of Tunis El Manar, Tunisia

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