Jump On The Post-Earnings Announcement Drift

The authors examined the potential profitability of a strategy that exploits the post-earnings announcement drifts contingent on jump dynamics identified in stock prices around earnings announcements. With long positions in positive-jump stocks and short positions in negative-jump stocks, their hedge portfolio achieved an annualized abnormal return of 15.3% and an annualized Sharpe ratio of 1.52 over the last four decades. Neither conventional risk factors nor common company characteristics explain the abnormal return.