Momentum and Post-Earnings-Announcement Drift Anomalies

Download or read book Momentum and Post-Earnings-Announcement Drift Anomalies written by Ronnie Sadka and published by . This book was released on 2006 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the components of liquidity risk that are important for asset-pricing anomalies. Firm-level liquidity is decomposed into variable and fixed price effects and estimated using intraday data for the period 1983-2001. Unexpected systematic (market-wide) variations of the variable component rather than the fixed component of liquidity are shown to be priced within the context of momentum and post-earnings-announcement drift (PEAD) portfolio returns. As the variable component is typically associated with private information (e.g., Kyle (1985)), the results suggest that a substantial part of momentum and PEAD returns can be viewed as compensation for the unexpected variations in the aggregate ratio of informed traders to noise traders.