PEAD - Post Earnings Announcement Drift
* **Entry Logic (Concordant Signal):** The strategy waits for both the fundamental data, namely the earnings surprise, and the market reaction to move in the same direction. If a company reports earnings above expectations and the stock price reacts positively, this is called a **“concordant signal”**, and a long position is opened.
* **Behavior of Institutional Investors:** As noted in the source, institutional investors update their models and adjust their positions not within minutes, but through a process that takes **weeks**. This gradual trading process creates sustained buying pressure on the price, causing it to “drift” upward.
* **Duration of the Rally:** Research shows that this drift can continue for approximately **60 trading days** — around 3 months. For this reason, the strategy recommends holding the position for 60 days without setting any take-profit or stop-loss level.
* **Market Inefficiency:** Under the Efficient Market Hypothesis, all information should normally be reflected in prices immediately. However, PEAD is a **market inefficiency** documented since 1968 that violates this principle due to factors such as the slow reaction of institutions, analysts gradually revising their forecasts, and transaction costs.
In short, because it takes time for large institutional players to update their models and build substantial positions gradually in the market, you are able to benefit from this “slow” information-processing process and ride the rally.
* **Behavior of Institutional Investors:** As noted in the source, institutional investors update their models and adjust their positions not within minutes, but through a process that takes **weeks**. This gradual trading process creates sustained buying pressure on the price, causing it to “drift” upward.
* **Duration of the Rally:** Research shows that this drift can continue for approximately **60 trading days** — around 3 months. For this reason, the strategy recommends holding the position for 60 days without setting any take-profit or stop-loss level.
* **Market Inefficiency:** Under the Efficient Market Hypothesis, all information should normally be reflected in prices immediately. However, PEAD is a **market inefficiency** documented since 1968 that violates this principle due to factors such as the slow reaction of institutions, analysts gradually revising their forecasts, and transaction costs.
In short, because it takes time for large institutional players to update their models and build substantial positions gradually in the market, you are able to benefit from this “slow” information-processing process and ride the rally.
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