Post-earnings drift
The idea that after a company reports profits better (or worse) than expected, its stock keeps drifting in the same direction for weeks, not just on the day.
In plain English
Every quarter, companies report their profits and analysts have already guessed what the number will be. The gap between the guess and the real number is the earnings surprise. The drift theory says the market reacts too slowly, so stocks with good surprises keep rising and stocks with bad ones keep falling.
It's one of the oldest findings in finance research. Whether it still pays, after costs and against a fair comparison, is a different question.
Uncle Gary explains
Cousin Kevin's annual review said 'better than expected'. Uncle Gary predicted a promotion within weeks. Kevin is still waiting. Meanwhile, the colleague whose review said 'worse than expected' is already packing his desk.
Why it matters for your money
In our test the best surprises did no better than the same stocks on a random day. The gap between best and worst came almost entirely from the worst falling, which you can only collect by shorting, and it was fading after 2023.
Where we tested it
Related terms
All glossary terms. Educational content, not financial advice.