Post Loss/Profit Announcement Drift
By Karthik Balakrishnan, Eli Bartov, Lucile Faurel. 2010
189 citations recorded by the source corpus.
We document a market failure to fully respond to loss/profit quarterly announcements. The annualized post portfolio formation return spread between two portfolios formed on extreme losses and extreme profits is approximately 21 percent. This loss/profit anomaly is incremental to previously documented accounting-related anomalies, and is robust to alternative risk adjustments, distress risk, firm size, short sales constraints, transaction costs, and sample periods. In an effort to explain this finding, we show that this mispricing is related to differences between conditional and unconditional probabilities of losses/profits, as if stock prices do not fully reflect conditional probabilities in a timely fashion.
Subfields: Accounting, Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/9f379283d42fe578b5516b2550e49ac8d5a9787c
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Citations in the corpus
- Identifying Expectation Errors in Value/Glamour Strategies: A Fundamental Analysis Approach (2012, unknown): “…drift,Bernard and Thomas 1989,1990), extreme earnings and revenue innovations (Doyle, Lundholm, and Soliman 2006; Jegadeesh and Livnat 2006; Balakrishnan, Bartov, and Faurel 2010), the reversing nature of extreme accrual realizations (Sloan 1996), net financing activities (Bradshaw,…”
- Digesting Anomalies: An Investment Approach (2015, background): “…periods (1-month and 6- month) for many anomaly portfolios that are monthly rebalanced, such as the Ang et al. (2006) total, idiosyncratic, and systematic volatilities; the Campbell, Hilscher, and Szilagyi (2008) failure probability; and the Balakrishnan, Bartov, and Faurel (2010) return on assets.”
- Has goodwill accounting gone bad? (2017, background): “, 1996; Lee and Swaminathan, 2000), and return on assets (ROAt-1) (Balakrishnan et al., 2010).”
- A Comparison of New Factor Models (2017, background): “…and Faurel (2010) Balakrishnan, Bartov, and Faurel (2010) Roa12 Return on assets (12-month holding period), dRoa1 Change in Roa (1-month holding period) Balakrishnan, Bartov, and Faurel (2010) dRoa6 Change in Roa (6-month holding period) dRoa12 Change in Roa (12-month holding period) Rna…”
- Limited Investor Attention and Stock Market Misreactions to Accounting Information (2011, unknown): “Thus, the model explains the profit anomaly (Balakrishnan, Bartov, and Faurel 2010; Chen, NovyMarx, and Zhang 2010).”