Post‐earnings announcement drift is among the most persistent market anomalies. Two possible causes of the drift are transaction costs that dissuade investors from trading on earnings information immediately, and the market's inability to fully interpret the implications of earnings information. This study hypothesizes that information technology advances have significantly reduced the transaction costs of trading equity stocks and improved the informational efficiency of the capital market. These two changes should, therefore, reduce drift.

Using a sample of over 27,000 firm‐quarter observations for more than 1,600 firms, the results support the hypothesis that drift has declined significantly with the growth of information technology. The results are robust after controlling for factors correlated with time, changes in the value‐relevance of earnings, and previously identified variables that affect the drift, such as size, investor sophistication, and magnitude and sign of analysts' forecast errors. The study provides evidence that the information technology revolution may reduce trading friction and improve informational efficiency.

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