A post-earnings announcement drift (PEAD) refers to a return continuation pattern after the earnings announcements. Specifically, after the earnings for a stock are announced, the stock price return continues to drift in the direction of the earnings news (better-than-expected earnings constitute positive earnings news, worse-than-expected earnings constitute negative earnings news). It has been shown that conservatism partly contributes to the PEAD. Which of the following statements represent the conservatism effect on the PEAD:

Question

A post-earnings announcement drift (PEAD) refers to a return continuation pattern after the earnings announcements. Specifically, after the earnings for a stock are announced, the stock price return continues to drift in the direction of the earnings news (better-than-expected earnings constitute positive earnings news, worse-than-expected earnings constitute negative earnings news). It has been shown that  conservatism  partly contributes to the PEAD. Which of the following statements represent the conservatism effect on the PEAD:

Accepted Answer

Investors underreact to negative earnings news, thus creating a continuing negative return pressure that lasts for some period

Answer

Investors underreact to positive earnings news, thus creating a positive return pressure that subsequently reverses

Answer

Investors overreact to positive earnings news, thus creating a continuing positive return pressure that lasts for some period

Answer

Investors overreact to negative earnings news, thus creating a negative return pressure that subsequently reverses

Crowdly

A post-earnings announcement drift (PEAD) refers to a return continuation patter...

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