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.
Once a firm's current earnings become known, the information content should be quickly digested by investors and incorporated into the efficient market price.
The most widely accepted explanation for the effect is investor under-reaction to earnings announcements.
According to Bernard & Thomas (1990), PEAD patterns can be viewed as including two components.
The first component is a positive autocorrelation between seasonal difference (i.e., seasonal random walk forecast errors – the difference between the actual returns and forecasted returns) that is strongest for adjacent quarters, being positive over the first three lag quarters.