AN INFORMATIONAL EFFICIENCY PERSPECTIVE ON THE POST-EARNINGS ANNOUNCEMENT DRIFT

This paper presents evidence indicating that the magnitude of the post-earnings-announcement drift is positively related to the direct and indirect costs of trading. Share price and annual dollar trading volume are chosen to proxy for the inverse of direct and indirect costs of trading, respectively. Drift is found to be inversely related to both these variables and these relations subsume the previously documented inverse relation between drift and firm size. The paper's evidence suggests that transactions costs are an important determinant of the efficiency of capital markets.