Pursue Uncertainty, But Skip the Dip: Information Uncertainty, Investor Sentiment, and the Post-Earnings-Announcement Drift in Sweden

Sammanfattning

This thesis investigates the post-earnings-announcement drift (PEAD) in Sweden during 2005-2023, using event-time and calendar-time analysis. It further examines whether the magnitude of the drift is associated with information uncertainty and investor sentiment. Adopting the behavioral view that PEAD stems from investor underreaction, we hypothesize that firms with higher uncertainty exhibit more drift, and that the drift is associated with the prevailing investor sentiment. We find evidence of PEAD and show that the drift is stronger for high-uncertainty firms, and weaker during periods of low investor sentiment. From this, we propose a selective trading strategy that outperforms the standard PEAD strategy and generates gross monthly abnormal returns of 1.23% (15.8% annualized) after controlling for market, size, value, and momentum as risk factors. However, the net abnormal return is sensitive to trading frictions, suggesting that the Swedish market is more efficient than implied by gross PEAD returns.