Post Earnings Announcement Drift on The JSE Top 40: A Study on Longer Term Holding Periods

Abstract

This paper studies the existence of the post-earnings announcement drift (PEAD) on the JSE top 40. The sample period used was from 2000-2020. The measures of surprise earnings used in this paper were the standardised unexpected earnings (SUE) and the initial 2-day returns (IR). The existence of PEAD was determined using portfolios sorted half yearly by the surprise measure of which the high minus low quantile spread (QS) was computed. A cross- sectional regression is run to determine if firm characteristics affect the PEAD. Cumulative abnormal returns (CARs) were used as a proxy PEAD and computed using the market model. PEAD drift exists on the JSE top 40, and the QS was found to be persistent for a 480-day trading window for both surprise measures. The PEAD anomaly found by QS was robust to a subsample period and the method of CAR computation. The IR-sorted portfolios generally outperformed the SUE-sorted portfolios. The SUE portfolio coefficients were insignificant in cross-sectional regression, while IR coefficients were up to the 360-day trading window.