Two of the longest-running puzzles in accounting and asset pricing research are the accrual anomaly and the post-earnings-announcement drift, or PEAD. Both describe return patterns that standard one-period asset pricing models struggle to explain, and both have generated a huge literature. The recurring question has been the same: is the market mispricing the information, or is it rationally pricing risk that one-period models may miss?
Stephen Penman and Julie Lei Zhu, authors of the June 2...
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