A Post Announcement Trading Strategy
Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
Previous research has shown that trading strategies based on the Post Earnings Announcement Drift (PEAD), the phenomenon where stock prices tend to drift up (down) for firms that report unexpectedly high (low) earnings, and fundamental analysis, in which financial data is used to evaluate a company's value, can generate risk-adjusted excess returns. The purpose of this report is to investigate whether a combined trading strategy, based on both PEAD and fundamental analysis, can generate higher returns than each trading strategy individually. Standardized Unexpected Earnings (SUE) (Setterberg (2007), Bernard and Thomas (1990), and others) is used to take advantage of the PEAD and the Piotroski (2000) model for fundamental analysis. Observations are made on the Stockholm Stock Exchange from 2002Q3 to 2009Q4. The results show that a combined hedge strategy based on a long position in the highest (SUE) decile with financially strong companies and a short position in the lowest (SUE) decile of financially weak companies on average generate a significant risk-adjusted excess return of 5.6% per quarter (24.2% per year) with 80-day holding period. The dual approach has thus generated an average of 2.6 and 1.6 percentage points higher return per quarter (10.8% and 6.6% per year) than a trading strategy solely based on PEAD or fundamental analysis.
Place, publisher, year, edition, pages
Post earnings announcement drift, PEAD, standardized unexpected earnings, SUE, SUE effect, trading strategy, Piotroski, avkastning, aktiehandel, kombinerad strategi
Other Civil Engineering
IdentifiersURN: urn:nbn:se:kth:diva-57645OAI: oai:DiVA.org:kth-57645DiVA: diva2:472422