Swedish Post Earnings Announcement Drift: Implications of Past Earnings on Market Anticipation
Abstract: This thesis investigates how the Swedish market realizes the full implications of past earnings for future earnings. This builds on previous studies on Post Earnings Announcement drift and sets out to expand on previous findings on the Swedish market. The aim of this thesis is to establish whether previous earnings releases can in fact enhance the earnings momentum. Apart from confirming the presence of the Post Earnings Announcement Drift, we find that the market reacts with less hesitation to unexpected earnings with the same sign as the previous quarter. Portfolios formed by subsequent high and low earnings surprises do not seem to drift significantly, contrary to the reference portfolios. These findings are surprising as they contradict previous results by Bernard and Thomas (1989) and Liu et al. (2003). However, we find that stocks with past positive earnings surprises tend to continue to perform better than expected, which could explain why these authors have found an oddly centered drift around the upcoming quarter. With these findings, we conclude that the Swedish market is more efficient than anticipated.
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