Which of the following statements is true regarding post-earnings-announcement drift?

Question

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Post-earnings-announcement drift is a phenomenon where the stock prices of companies with positive earnings surprises continue to drift upward in the several months following the earnings announcement. Some studies suggest that financial analysts may be responsible for this effect by underestimating the true earnings potential of companies in their forecasts. The other options are incorrect: A is incorrect because security prices do often react to earnings announcements, especially if there is a surprise in the earnings; C is incorrect because the effect may be more pronounced for smaller firms due to less analyst coverage; and D is incorrect because security prices eventually do fully reflect the effects of earnings announcements, although it may take some time for the market to fully digest the information.

Which of the Following Statements Is True Regarding Post-Earnings-Announcement Drift