Post-Earnings Announcement Drift: Intra-day Timing and Liquidity Costs*

The persistence of the post-earnings announcement drift leads many to believe that trading barriers prevent knowledgeable investors from eliminating it. For example, Bhushan (1994) contends that informed investors quickly exploit the information in earnings surprises driving stock prices to within transactions costs of efficient values and leaving the observed post-earnings price drift unexploitable. We use the exact dates and times of earnings announcements to compare the profits generated by trading immediately after earnings surprises–at quotes actually available to investors–with the profits generated by waiting until the close to trade. We further address the possible implications of commissions, price concession, and arbitrage risk. Under a wide range of assumptions, our results leave little doubt that between 1993 and 2002 an investor could have earned hedged-portfolio returns of at least 14% per year after trading costs.