SEMINAR SERIES No. 02/1415
Associate Professor, M.J. Neeley School of Business
Texas Christian University, USA
In this paper we develop a theory-based empirical measure of underreaction to earnings announcements that results from an asymmetric usage of earnings information. In our model, the squared correlation coefficient between order imbalance and earnings surprise ( 2r ) is the empirical measure of underreaction that one can use to predict the size of the post-earnings announcement drift (PEAD). Specifically, we show that 2 r × = k PEAD , where k is the information content of earnings. The predictive power of 2r is higher than that of firm attributes prior studies have identified to explainPEAD, including the bid-ask spread, opinion divergence, firm size, analyst following, and institutional ownership. A trading strategy based on 2r generates the Pastor-Stambaugh four-factor alpha of 8.25%.
Date: October 8, 2014 (Wednesday)
Venue: Faculty of Business Administration, E22-2014
A Short Biography of Prof. Steve C. Lim
Prof. Steve C. Lim serves as Associate Professor of M.J. Neeley School of Business at Texas Christian University, USA. Prof. Lim graduated from Korea University first with a B.A. degree in Business Administration and then a M.S. degree in Accounting. He got his Ph.D. degree in Accounting at Wharton School, University of Pennsylvania. Before joining Texas Christian University, he has been the Assistant Professor of School of Professional Accountancy at Long Island University. He is also the Editorial board of Pan Pacific Journal of Business Research.