Growth expectation and post-earnings-announcement drift

This paper uncovers evidence that financial analysts’ earnings growth rate forecasts (GF) explain the post-earnings drift of cumulative abnormal returns (CAR). We show that the post-earnings-announcement drift (PEAD) arises from investors’ delayed responses engendered by uncertainty resolution about growth expectation and attention limitation. Media coverage amplifies the effect of GF on the post-earnings CAR by influencing retail investors’ trading behavior. The results highlight the importance of financial analysts in shaping the growth perception for stocks and provide an alternative explanation for the drift in CARs after earnings announcements.