Last Thursday, I teased my readers that post-earnings announcement drift has recently been documented in corporate bonds. And it is a factor with such strong performance characteristics that bond investors should take note. The post-earnings announcement drift in stock markets is the phenomenon that in some cases, share prices do not react to positive or negative earnings surprises as much as the share price beta to the total market would imply. This can happen if a stock is small or less liquid or if the earnings announcement of the company is not followed widely by the investor community because the stock is considered unexciting. Or it can happen when earnings releases are dominated by macro or other events on the same day. Whatever the reason, investors can exploit the post-earnings announcement drift by investing in stocks that have underreacted to recent positive earnings surprises and selling stocks that have underreacted to recent negative earnings surprises.
Very surprising to me. Since the biggest brains in the investing world work in the bond market, I would have supposed anything like this would have been arbitraged away long ago.
Very surprising to me. Since the biggest brains in the investing world work in the bond market, I would have supposed anything like this would have been arbitraged away long ago.