Autocorrelation structure of forecast errors from time-series models: Alternative assessments of the causes of post-earnings announcement drift

John Jacob, Thomas Lys*, Jowell Sabino

*Corresponding author for this work

Research output: Contribution to journalArticle

25 Scopus citations

Abstract

This paper demonstrates that the evidence supporting the hypothesis that post-earnings announcement drift (PEAD) is caused by investors' failure to incorporate the implications of current earnings for future earnings is (also) consistent with researchers' over-differencing an already stationary time-series. Specifically, we show the evidence is driven by a subset of firms where over-differencing of quarterly earnings in estimating earnings surprises is most likely to have occurred. Given the persistence of the PEAD over time, our alternative explanation suggests that the prior research investigating the causes for the PEAD overestimates investors' naivete.

Original languageEnglish (US)
Pages (from-to)329-358
Number of pages30
JournalJournal of Accounting and Economics
Volume28
Issue number3
DOIs
StatePublished - Dec 1999

Keywords

  • Autocorrelation
  • Post-earnings-announcement drift
  • Time-series forecasts

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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