Arbitrage Risk and Post‐Earnings‐Announcement Drift
Year: 2004
Type: article
Abstract: This study examines whether the magnitude of post-earnings-announcement drift is related to the risk faced by arbitrageurs who may view the anomaly as a trading opportunity. Consistent with this hypothesis, the magnitude of the drift is strongly related to the arbitrage risk measure developed by Wurgler and Zhuravskaya (2002). The effect of arbitrage risk is statistically and economically significant under a wide range of specifications. The results suggest that post-earnings-announcement drift represents an underreaction to earnings information and that arbitrage risk impedes arbitrageurs from eliminating it.
Source: The Journal of Business
DOI: 10.1086/422627
Author: Richard R. Mendenhall
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3121404877