In an event study, a slow price drift after a public earnings announcement is usually interpreted as

Question

BlackTom AI · Accepted Answer

A post-announcement slow price drift is signature of underreaction: prices do not incorporate the new public information fully and immediately, so abnormal returns continue to accumulate after the announcement.

Relevant knowledge points and concepts:
- Event study framework: compute abnormal return AR_t = R_t − E[R_t | information before t] each day around the announcement and cumulative abnormal return CAR(T1,T2) = Σ AR_t over a window.
- Semi-strong form Efficient Market Hypothesis (EMH): public information is reflected in prices immediately, so expected AR_t = 0 for t after the announcement and the CAR should show no systematic drift.
- Post-Earnings Announcement Drift (PEAD): empirical phenomenon where CAR continues to move in the direction of the news for days or months after earnings releases.

Step-by-step reasoning:
1. Measure AR_t for each day after the announcement. Under semi-strong EMH, AR_t ≈ 0 for t > 0, so CAR should flatten.
2. If empirical AR_t > 0 (for good news) or AR_t < 0 (for bad news) persistently after t = 0, then CAR increases (or decreases) over time — that is the observed slow drift.
3. This persistent, predictable AR implies that investors can earn excess returns by trading on the announcement, which contradicts the hypothesis of immediate full incorporation of public information.
4. Therefore the slow drift is interpreted as evidence of underreaction (prices initially adjust too little) and thus a possible failure of full market efficiency.

Why other options are incorrect:
- “Evidence that prices instantaneously incorporate all public information” is the opposite of a slow drift; instantaneous incorporation would produce no post-announcement drift.
- “Proof that expected returns are always constant” is unrelated; a drift shows expected abnormal returns are nonzero and time-varying after the event, not constant.
- “Proof that the risk-free rate is mismeasured” is irrelevant: drift concerns abnormal returns relative to expected returns, not mismeasurement of the risk-free rate.

Conclusion: The slow post-announcement price drift is best interpreted as evidence of underreaction and a possible failure of full market efficiency, matching the provided answer.

In an event study, a slow price drift after a public earnings announcement is usually interpreted as单项选择题

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