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Security Analyst Experience and Post-Earnings Announcement Drift, Journal of Accounting, Auditing and Finance

Abstract

Prior research suggests that various financial anomalies are related to investors' inability to process historical earnings and price information. In particular, analysts' failure to incorporate appropriately the serial correlation in earnings surprises provides at least a partial explanation for post-earnings-announcement drift. Because prior work documents that analysts more fully incorporate the information in prior earnings surprises as they gain experience, we examine if firms followed by more experienced analysts exhibit less drift. Measuring analyst firm-specific forecasting experience as the number of prior quarters for which the analyst has issued an earnings forecast for the firm, we find that post-earnings-announcement drift associated with firms with a more experienced analyst following is 18 percent less than that for firms with a less experienced analyst following. This result suggests that the efficiency of a firm's market price is affected by the aggregate experience level of its analyst following.

Type

Article

Author(s)

Michael Mikhail, Beverly Walther, Richard Willis

Date Published

2003

Citations

Mikhail, Michael, Beverly Walther, and Richard Willis. 2003. Security Analyst Experience and Post-Earnings Announcement Drift. Journal of Accounting, Auditing and Finance. 18(4): 529-550.

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