When PEAD fails: Analysis of the causes of negative market reactions to positive earnings surprises (and vice versa)
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- The post-earnings-announcement drift (PEAD) is one of the most persistent anomalies in empirical asset pricing, yet the conditions under which it reverses remain largely unexplored. In this thesis, we aim to understand when the drift fails and reverse by testing five firm-level and macroeconomic conditions on approximately 240,000 quarterly earnings announcements by US common stocks listed on NYSE, AMEX and Nasdaq between 2000 and december 2024. We find that discretionary accruals significantly weaken the drift, with an interaction effect that grows from +30 trading days and reaches approximately −1.9 at +250 days. We also show that the price-to-book ratio attenuates the drift around the announcement, suggesting that growth stocks integrate earnings news more rapidly. Under volatility normalisation, we found that the proximity to the 52-week high amplifies rather than reverses the drift. Finally, this thesis aims to challenge the traditional view of the PEAD by mapping the precise boundaries where this well-known anomaly breaks down and reverses.