Post-Earnings-Announcement Drift and the Pricing of Swedish Equities

Abstract

This thesis investigates the presence of post-earnings-announcement drift in the Swedish equity market and examines how firm size and liquidity influence abnormal returns following earnings releases. An event study is conducted using data from ten randomly selected Swedish large and small cap companies over a five-year period, between 2020-2025, measuring cumulative abnormal returns over a 20-day post-announcement window. The findings provide strong evidence of post-earnings-announcement drift in both markets, with significantly higher average cumulative abnormal returns observed among the small cap firms compared to the large cap firms. These results challenge the Efficient Market Hypothesis by indicating delayed price adjustments in response to earnings information. Although liquidity, proxied by average turnover, showed a weak explanatory power for the variation in cumulative abnormal returns, firm size proved to be a more significant factor, with smaller firms exhibiting greater pricing inefficiencies. These findings highlight persistent pricing anomalies in the Swedish equity market, particularly in small cap stocks, and raises important questions about the effectiveness of information processing.