Is trading on earnings surprises a profitable strategy? Canadian evidence

Mark Chudek, Cameron Truong, Madhu Veeraraghavan

Research output: Contribution to journalArticlepeer-review

11 Citations (Scopus)


This study examines the profitability of trading on earnings surprises in the post-earnings announcement period for Canadian equities spanning the period 1994-2009. There is clear evidence that stock prices drift in the direction of earnings surprise for several months following an earnings announcement. Specifically, we find that standardized unexpected earnings based on analyst forecasts (SUEAF), our main definition of earnings surprise, indicates that a hedge strategy of going long on firms in the highest SUEAF decile and going short on firms in the lowest SUEAF decile generates a greater than 6% excess return in the 60 days following the earnings announcement. We also show that that while both the SUEAF and standardized unexpected earnings (SUE) capture earnings surprise, each contains information that is not entirely subsumed by the other. In summary, we advance that the post-earnings announcement drift is caused by the market's delay in responding to earnings information. Our findings have major investment implications, since investors in general and Canadian investors in particular can exploit this anomaly.

Original languageEnglish
Pages (from-to)832-850
Number of pages19
JournalJournal of International Financial Markets, Institutions and Money
Issue number5
Publication statusPublished - 12-2011

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics


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