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Intra-Industry Information Transfers And The Post-Earnings Announcement Drift

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Executive Summary

This paper examines the role of intra-industry information transfers in the post-earnings announcement drift. The authors find that subsequent same-industry earnings announcements are strongly related to a firm's post-earnings announcement drift. The post-earnings drift is present only when subsequently arriving same-industry earnings announcements confirm a firm's initial earnings surprise. Moreover, the drift is present only when subsequent same-industry earnings cannot be anticipated from past industry earnings. The latter result is consistent with Brav and Heaton's (2002) model of rational agents acting under structural uncertainty and inconsistent with existing behavioral theories.

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