Accrual and PEAD

The most prominent accounting anomaly discovered by Bernard and Thomas (1990) is Post Earnings Announcement Drift (PEAD). Bernard and Thomas showed that the market does not fully recognize unexpected earnings and stock returns continue to increase

for up to four quarters after the surprise in earnings. DeFond and Park (2000) researched the link between PEAD and the accrual anomaly. They argued that earnings surprises that are attributable to abnormal accruals should be perceived differently by investors than the earnings surprises that do not include a reversal accrual component.


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