Does PEAD Increase with Event-Specific Information Uncertainty?

We examine the empirical relation between event-specific information uncertainty and post-earnings-announcement-drift (PEAD). Since PEAD is largely attributed to delayed price reactions to the implications of announced earnings for future earnings, our primary thesis is that PEAD is associated with the uncertainty facing investors when they interpret earnings announcements. Accordingly, we examine the relation between PEAD and three proxies for event-specific uncertainty: pre-announcement to post-announcement change in dispersion of future earnings forecasts, the interval between earnings announcement and post-announcement forecast revisions, and the number of post-announcement forecast revisions. We argue that these three characteristics of analysts’ forecasts capture the uncertainty analysts face as they consider the implications of announced earnings for future earnings. For each proxy, we find that PEAD increases with signal uncertainty. In sum, our results indicate that drift in post-signal prices is less prevalent when analysts quickly agree on the implications of the signal for future earnings.