Key Takeaways
- Post-earnings announcement drift (PEAD) remains a persistent market anomaly, with positive earnings surprises often leading to prolonged stock gains.
- “Double beat” events, where firms surpass both EPS and revenue forecasts and raise guidance, tend to intensify subsequent price drift.
- Behavioural biases, delayed information absorption, and investor attention all contribute to the drift effect.
- Recent Q2 2025 earnings from companies like Palantir and PayPal demonstrate strong PEAD patterns following solid earnings beats.
- Despite technological advances, PEAD remains exploitable under specific market and earnings conditions, with annualised returns estimated up to 7% through 2026.
Post-earnings announcement drift (PEAD) remains one of the most enduring anomalies in financial markets, where stocks experiencing positive earnings surprises often continue to climb well beyond the initial reaction, defying the efficient market hypothesis. When a company not only surpasses consensus estimates on both earnings per share and revenue but also raises its forward guidance, the likelihood of a prolonged upward trajectory increases significantly, as historical data and academic research spanning over four decades consistently demonstrate.
Decades of Evidence: The Persistence of PEAD
The phenomenon of PEAD, first documented in the late 1960s, highlights how markets underreact to earnings news, allowing stock prices to drift in the direction of the surprise over subsequent weeks or months. A comprehensive review published in the Journal of Behavioral and Experimental Finance in 2020, underscores that firms reporting earnings above expectations see their stock prices drift upwards by an average of 2–5% in the following quarter, while those missing estimates drift downwards by a similar magnitude. This drift is not a fleeting aberration; it has persisted through bull and bear markets, technological disruptions, and regulatory changes.
What amplifies this effect is the combination of a “double beat” – exceeding both EPS and revenue forecasts – coupled with an upward revision in guidance. Analyst models, such as those from Quantpedia, indicate that such scenarios boost the drift’s intensity, with stocks in the top quintile of earnings surprises generating excess returns of up to 6% over 60 days post-announcement. This is attributed to gradual information dissemination, where institutional investors and analysts slowly incorporate the positive signals into their valuations, rather than an immediate repricing.
Mechanisms Driving the Drift
Several factors contribute to why earnings surprises, particularly strong ones with guidance hikes, fail to be fully priced in on announcement day. Information asymmetry plays a key role: not all market participants digest the nuances of earnings calls or updated projections simultaneously. Research points to bid-ask spread components like adverse selection costs spiking during announcements, signalling heightened uncertainty that resolves over time.
Investor attention also mediates the effect. A 2024 study in the International Review of Financial Analysis introduces a simple earnings surprise measure (ORJ) and finds that high investor attention – proxied by trading volume or media coverage – strengthens PEAD for positive surprises but asymmetrically weakens it for negatives. In essence, a double beat with raised guidance acts as a beacon, drawing sustained buying interest that propels prices higher.
Behavioural finance adds another layer: overconfidence and anchoring biases lead traders to underweight new information, extending the adjustment period. When guidance is raised, it signals management’s confidence in future performance, yet markets often discount this initially, only to catch up as subsequent data validates the outlook.
Recent Examples and Market Implications
In the current earnings season as of 11 August 2025, several companies have exemplified this dynamic. Palantir Technologies (PLTR), for instance, reported a double beat with revenue growth exceeding estimates by 5% and EPS by 18%, alongside raised full-year guidance, leading to a sustained 15% stock rise over the following week, per settled daily closes. Similarly, PayPal Holdings (PYPL) delivered a 5% revenue beat, 18% EPS surprise, and a 4% guidance hike, resulting in a 10% drift upwards in the ensuing sessions.
These cases align with broader trends. A Yahoo Finance video from October 2024, featuring Catalyst Funds’ senior portfolio manager David Miller, highlights PEAD’s importance in strategy, noting that stocks with strong surprises often drift positively for 30–90 days. Sentiment from verified sources, such as Citi analysts in April 2025, indicates that over half of S&P 500 firms maintained or raised guidance in recent reports, with implied volatility at multi-year highs outside pandemic periods, amplifying potential drifts.
To quantify, consider the following table of select stocks exhibiting double beats with guidance raises in Q2 2025, based on data as of 11 August 2025:
| Ticker | EPS Surprise (%) | Revenue Surprise (%) | Guidance Raise (%) | 30-Day Post-Announcement Return (%) |
|---|---|---|---|---|
| PLTR | 18 | 5 | 4 | 15 |
| PYPL | 18 | 5 | 4 | 10 |
| DUOL | 78 | 41 | 5 | 12 |
| UPST | 25 | 15 | 3 | 18 |
These figures, drawn from settled session data, illustrate the drift’s potency, though past performance does not guarantee future results.
Investment Strategies and Risks
For investors, harnessing PEAD involves screening for double beats with guidance upgrades, then holding through the drift period. Analyst-led forecasts from firms like Bespoke in 2023 suggest EPS beat rates around 77% correlate with positive drifts, but execution requires discipline. A strategy outlined in Trade That Swing’s May 2025 article recommends swing trading such setups, targeting 10–20% gains over weeks.
- Monitor for asymmetry: Positive surprises yield stronger drifts than negatives, per 2024 ScienceDirect research on order flow imbalances.
- Incorporate sentiment: Bullish analyst views amplify PEAD, as noted in Bal.Ai’s August 2025 analysis.
- Beware volatility: High implied moves, as per Citi, can lead to sharp reversals if broader markets sour.
Risks abound – macroeconomic shifts or sector rotations can truncate drifts. A UCLA Anderson Review paper from 2023 warns that retail investor concentration can alter drift patterns, introducing unpredictability.
Looking Ahead: PEAD in Evolving Markets
As markets integrate AI and real-time data, one might expect PEAD to diminish, yet evidence suggests otherwise. Analyst models project that in a low-rate environment, PEAD could generate annualised excess returns of 4–7% for top-surprise portfolios through 2026, per Quantpedia simulations. With earnings seasons increasingly volatile, the double beat plus guidance raise remains a reliable signal for sustained moves, offering a edge in an otherwise efficient landscape.
In summary, PEAD’s endurance underscores market inefficiencies that savvy investors can exploit, provided they anchor decisions in rigorous data and avoid overreliance on any single anomaly.
References
- Anderson Review. (2023). When individuals concentrate in a stock, earnings surprises play out differently. UCLA. https://anderson-review.ucla.edu/when-individuals-concentrate-in-a-stock-earnings-surprises-play-out-differently/
- Capital.com. (n.d.). Post-Earnings Announcement Drift (PEAD) – Definition. https://capital.com/en-int/learn/glossary/post-earnings-announcement-drift-definition
- International Review of Financial Analysis. (2024). Volume 95. https://ideas.repec.org/a/eee/finana/v95y2024ipbs1057521924003922.html
- Journal of Behavioral and Experimental Finance. (2020). PEAD Review. https://www.sciencedirect.com/science/article/pii/S2214635020303750
- Quantpedia. (n.d.). Post-Earnings Announcement Effect. https://quantpedia.com/strategies/post-earnings-announcement-effect
- ScienceDirect. (2024). Order Flow Imbalances and PEAD. https://www.sciencedirect.com/science/article/abs/pii/S1057521924003922
- ScienceDirect. (2024). Additional PEAD Studies. https://www.sciencedirect.com/science/article/abs/pii/S1057521924002485
- Trade That Swing. (2025, May). Capitalising on Earnings Drift: Better-Than-Expected Earnings Trading Strategy. https://tradethatswing.com/capitalizing-on-earnings-drift-better-than-expected-earnings-trading-strategy/
- Wikipedia. (2005). Post-Earnings Announcement Drift. https://en.wikipedia.org/wiki/Post%E2%80%93earnings-announcement_drift
- Yahoo Finance. (2024, October). Post-Earnings Announcement Drift: Why It Still Matters. https://finance.yahoo.com/video/post-earnings-announcement-drift-why-165127165.html
