Publication Type

Conference Paper

Publication Date

6-2009

Abstract

We report that trends defined by the sign of quarterly earnings surprises predict returns. This finding indicates that trends in firm-level fundamentals bias investor expectations. Specifically, the underreaction of investors to trends is consistent with the gambler’s fallacy in Rabin (2002). The return predictability of trends is not attributable to the magnitude of earnings surprises. Instead, trends explain more than half of the post-earnings announcement drift in our sample.

Keywords

Trends, Earnings Surprises, Underreaction

Discipline

Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Finance

Publication

Asian Finance Association International Conference, Brisbane, 30 June - 3 July 2009

First Page

1

Last Page

36

City or Country

Brisbane, Australia

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