Weak initial market reaction to earnings leads to larger post-announcement drift.
The article looks at how the stock market reacts to earnings surprises and how it affects stock prices later on. They created a new measure called earnings response elasticity (ERE) to measure this. They found that when the market doesn't react strongly to earnings surprises, there is a bigger change in stock prices later. By following a specific trading strategy based on ERE, investors can make an average return of 5.11% per quarter.