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  • Writer's pictureArjan Bartlema

PEAD-effect - another trap to avoid

In financial economics and accounting research, post–earnings-announcement drift or PEAD (also named the SUE effect) is the tendency for a stock's cumulative abnormal returns to drift in the direction of an earnings surprise for several weeks (even several months) following an earnings announcement.

On a basic level it makes a lot of sense. Everyone want a part of a good thing. So if good news reaches you, you want to act. Missing-out effect, confirmation bias all help you along to buy some of it. And then too much of it will be bought. So the good thing is overbought, and a downward correction is next.

One way to avoid this is invest based on a system and stick with the system. Don't give in to the urges.

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