Post-earnings announcement drift: Spanish evidence

This paper analyses whether earnings announcements in the Spanish stock market are followed in subsequent months by a return drift in the same direction as the earnings surprise. Two alternative earnings surprise measures are used and they both provide strong post-earnings announcement drifts. In order to find an explanation for this anomaly we first make several unconditional adjustments, which include the CAPM, the Fama–French (J Financ Econ 33:3–56, 1993) three-factor model, a liquidity factor, controlling portfolios by size and book-to-market ratio, and controlling for the momentum effect. Second, we make a conditional analysis following two different approaches: (i) studying the relation with the business cycle and (ii) studying whether this phenomenon can be explained through a conditional version of the CAPM and the Fama-French model. None of these adjustments are able to satisfactorily capture the Spanish post-earnings announcement drift. A final analysis offers some slight evidence in favour of the limits-to-arbitrage explanation.