Anchoring, the 52-Week High and Post Earnings Announcement Drift

The existence of post earnings announcement drift (PEAD) depends strongly on whether stocks' prices are near (far from) their 52-week highs when positive (negative) earnings surprises arrive. We find that the coincidence of these two effects is what generates significant PEAD. Daily returns around current and future earnings announcements follow a similar pattern --- announcement returns are more muted for extreme positive (negative) surprises, the closer (farther) are prices to the 52-week high. In addition, subsequent announcement returns are greater for these firms, consistent with a correction of previous underreaction. This suggests that an important contributing factor to PEAD is investors anchoring their beliefs about fundamental value on the 52-week high, which restrains price reactions to earnings news.