Post-Earnings-Announcement Drift and Investor Sophistication: Employing buy-side, sell-side and inside proxies in a Swedish setting

Abstract: This paper studies the post-earnings-announcement drift and its connection to investor sophistication in Sweden over a time period ranging from 2004 to 2013. Using a sample of 215 stocks, it is first hypothesized and shown that a portfolio long (short) in shares with positive (negative) earnings announcement returns yields economically and statistically significant cumulative abnormal returns over a 60-day holding period. Second, it is hypothesized that higher institutional ownership and analyst experience reduce the magnitude of the drift whereas insider trading is expected to lead to a faster drift realization. Yet, while there is some indicative evidence in favour of the latter prediction, no statistically significant relationship between post-earnings-announcement drift and investor sophistication is found.