|
Abstract:
|
This dissertation reconciles ostensibly conflicting evidence from prior research about the association between information uncertainty and post -earnings -announcement drift (PEAD ) . According to traditional PEAD studies there should be a positive association between PEAD and uncertainty about the implication of an earnings announcement for future earnings , referred to in this dissertation as "information uncertainty ." Empirical studies have documented both positive and negative associations , however . In particular , studies that use analyst forecast dispersion as a proxy for information uncertainty report a negative association between information uncertainty and PEAD . Although the authors of those studies argue that their results are consistent with behavioral finance theories , a negative association between information uncertainty and PEAD is troubling because it is not consistent with the notion that more reliable information improves market efficiency . In fact , previous empirical studies that use proxies for information uncertainty other than analyst forecast dispersion find a positive association between information uncertainty and PEAD . This study argues that the negative association between analyst forecast dispersion and PEAD can be explained by "herding" behavior immediately after earnings announcements . I introduce an analyst -based proxy for information uncertainty that mitigates the effects of herding on forecast dispersion . I find that , after controlling for the effect of herding , there is a positive association between information uncertainty and PEAD even when analyst forecasts are used to measure information uncertainty . |