Title

The Return Predictability of Trends

Publication Type

Conference Paper

Publication Date

10-2009

Abstract

The gambler's fallacy in Rabin (2002) predicts that trends bias investor expectations. We find that trends in earnings are a robust predictor of risk-adjusted returns, with the underreaction of investors to trends providing empirical support for the gambler's fallacy. The return predictability of trends is not attributable to the autocorrelation in earnings surprises nor 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

Portfolio and Security Analysis

Publication

FMA meetings

City or Country

Reno, Nevada, USA

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