Post‐Earnings Announcement Drift: Bounds on Profitability for the Marginal Investor

The persistence of the post‐earnings announcement drift (PEAD) leads many to believe that trading barriers prevent investors from eliminating it. We examine two factors that have not been adequately addressed by the literature: the exact timing of earnings announcements and liquidity costs. Under a wide range of timing and cost assumptions, our results leave little doubt that over our sample period the PEAD was highly profitable after trading costs. An additional incremental investor could have earned hedged‐portfolio returns of at least 14% per year after trading costs. Over our sample period, investors did indeed leave money on the table.