Drift or Jump: What Drives Post-Earnings Announcement Stock Returns?

2012 ◽  
Author(s):  
Linda H. Chen ◽  
George J. Jiang
Keyword(s):  
Stock Returns ◽  
Earnings Announcement

Is Openness Penalized? Stock Returns around Earnings Warnings

2007 ◽  
Vol 82 (4) ◽  
pp. 1055-1087 ◽  
Author(s):  
Jennifer W. Tucker
Keyword(s):  
Stock Returns ◽  
Selection Bias ◽  
Selection Model ◽  
Bad News ◽  
Short Term ◽  
Heckman Selection Model ◽  
Earnings Announcement ◽  
Self Selection ◽  
Earnings Warnings ◽  
Heckman Selection

Prior research finds that firms warning investors of an earnings shortfall experience lower returns than non-warning firms with similar risks and earnings news. Openness thus appears to be penalized by investors. Yet, this finding may be due to a self-selection bias that occurs when firms with a larger amount of unfavorable non-earnings news (“other bad news”) are more likely to warn. In this paper I use a Heckman selection model to infer the amount of other bad news and document that, on average, warning firms have a larger amount of other bad news than non-warning firms. After controlling for this effect, I find that warning firms' returns remain lower than those of non-warning firms in a short-term window ending five days after earnings announcement. When this window is extended by three months, however, warning and non-warning firms exhibit similar returns. My evidence suggests that openness is ultimately not penalized by investors.

scholarly journals Quarterly Earnings Announcement Effect on Stock Return and Trading Volume in Nepal

2019 ◽  
Vol 4 ◽  
pp. 32-47
Author(s):  
Jeetendra Dangol ◽  
Ajay Bhandari
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Trading Volume ◽  
Earnings Announcements ◽  
Good News ◽  
Fiscal Year ◽  
Event Analysis ◽  
Earnings Announcement ◽  
Quarterly Earnings ◽  
Analysis Methodology

The study examines the stock returns and trading volume reaction to quarterly earnings announcements using the event analysis methodology. Ten commercial banks with 313 earnings announcements are considered between the fiscal year 2010/11 and 2017/18. The observations are portioned into 225 earning-increased (good-news) sub-samples and 88 earning-decreased (bad-news) sub-samples. This paper finds that the Nepalese stock market is inefficient at a semi-strong level, but there is a strong linkage between quarterly earnings announcement and trading volume. Similarly, the study provides evidence of existence of information content hypothesis in the Nepalese stock market.

Asymmetric Timeliness and the Resolution of Investor Disagreement and Uncertainty at Earnings Announcements

2019 ◽  
Vol 95 (4) ◽  
pp. 23-50 ◽  
Author(s):  
Mary E. Barth ◽  
Wayne R. Landsman ◽  
Vivek Raval ◽  
Sean Wang
Keyword(s):  
Stock Returns ◽  
Earnings Announcements ◽  
Investment Decisions ◽  
Bad News ◽  
Positive Relation ◽  
Potential Cost ◽  
Earnings Announcement ◽  
Asymmetric Timeliness ◽  
Valuation Uncertainty ◽  
Investor Disagreement

ABSTRACT This study finds that greater asymmetric timeliness of earnings in reflecting good and bad news is associated with slower resolution of investor disagreement and uncertainty at earnings announcements. These findings indicate that a potential cost of asymmetric timeliness is added complexity from requiring investors to disaggregate earnings into good and bad news components to assess the implications of the earnings announcement for their investment decisions. Such a disaggregation impedes the speed with which investor disagreement and uncertainty resolve. The findings indicate that asymmetric timeliness also delays price discovery at earnings announcements. We also find a positive relation between asymmetric timeliness and stock returns during the earnings announcement period after the initial price reaction to the announcement, which is consistent with resolution of valuation uncertainty. However, we do not find clear evidence of more net stock purchases during this period by insiders of firms with greater asymmetric timeliness. JEL Classifications: M41; G14.

The Earnings Event-Time Seasonal and the Calendar-Time Seasonal in Stock Returns: Naive Use of Earnings Information or Announcement Timing Effect?

1995 ◽  
Vol 10 (4) ◽  
pp. 677-698 ◽  
Author(s):  
Ray Ball ◽  
Eli Bartov
Keyword(s):  
Stock Returns ◽  
Abnormal Returns ◽  
Calendar Time ◽  
Earnings Announcement ◽  
Future Earnings ◽  
Quarterly Earnings ◽  
Earnings Information ◽  
Event Time ◽  
Unexpected Earnings ◽  
Day Of The Week

We document a pattern in the day-of-the-week timing of future earnings announcements that is predictable from knowledge of the current quarter's earnings. The pattern mimics the predictable (+, +, 0, -) dependence previously reported in both seasonally differenced quarterly earnings themselves and in estimated abnormal returns at future quarterly earnings announcement dates (the “SUE effect”; see Rendleman, Jones, and Latané [1987]; Bernard and Thomas [1990]). The predictability of abnormal returns at future earnings announcement dates therefore is not independent of the well-documented day-of-the-week seasonal in stock returns (the “DOW effect”; see Osborne [1962]; Cross [1973]; French [1980]; Gibbons and Hess [1981]). Although the DOW effect is too small to fully explain the SUE effect, it appears to contribute to it, since both past SUE and current earnings announcement DOW are incremental in explaining announcement-day estimated abnormal returns. The unclear role of size and the presence of errors in estimating both unexpected earnings and its announcement day suggest caution in interpreting these results.

Herding on Earnings News: The Role of Institutional Investors in Post–Earnings-Announcement Drift

2017 ◽  
Vol 32 (4) ◽  
pp. 536-560 ◽  
Author(s):  
Linda H. Chen ◽  
Wei Huang ◽  
George J. Jiang
Keyword(s):  
Stock Returns ◽  
Institutional Investors ◽  
Stock Prices ◽  
Institutional Trading ◽  
Earnings Announcement ◽  
Post Earnings Announcement Drift ◽  
Gradual Process ◽  
Earnings Surprises ◽  
Institutional Herding

We examine the role of institutional investors underlying post–earnings-announcement drift (PEAD). Our results show that while institutional investors generally herd on earnings news, such correlated trading among institutions does not eliminate or reduce market underreaction to earnings surprises. Instead, PEAD is significant only in the subsample of stocks where institutions herd in the same direction as earnings surprises. In fact, institutional herding is also positively related to next-quarter earnings announcement returns. We provide evidence that institutional herding on or against earnings news is largely driven by firm characteristics, particularly past firm performance and stock returns. In addition, we find that relative to nontransient institutions, transient institutions have a stronger tendency to herd on earnings information. Finally, based on long-run stock returns, we show that when institutions herd on earnings surprises, institutional trading represents a gradual process of incorporating information into stock prices. However, when institutions herd against earnings surprises, institutional trading slows down stock price discovery.

Employee Flexibility, Exogenous Risk, and Firm Value

2019 ◽  
pp. 1-32 ◽  
Author(s):  
Shiu-Yik Au ◽  
Ming Dong ◽  
Andreanne Tremblay
Keyword(s):  
Stock Returns ◽  
Firm Value ◽  
Textual Analysis ◽  
Policy Uncertainty ◽  
Earnings Announcement ◽  
Exogenous Shocks ◽  
Announcement Returns ◽  
Workforce Flexibility ◽  
External Risk ◽  
High Flexibility

We hypothesize that employee flexibility enhances firm value by helping firms respond to exogenous shocks. We estimate employee-flexibility scores through textual analysis of online job reviews, and we find that a high flexibility score leads to superior stock returns for firms exposed to external risk. During 2011–2017, the value-weighted hedge portfolio formed on employee flexibility earned a 5-factor annualized alpha of 9.5% during periods of high policy uncertainty. Earnings-announcement returns also suggest that investors do not fully value workforce flexibility. These results indicate that employee flexibility is a valuable corporate intangible that helps firms to manage risk during uncertain times.

scholarly journals Differential Effect Of The Sarbanes-Oxley Act On Individual And Institutional Investors

2016 ◽  
Vol 32 (2) ◽  
pp. 517
Author(s):  
Sorah Park
Keyword(s):  
Stock Returns ◽  
Institutional Investors ◽  
Differential Effect ◽  
Empirical Test ◽  
Individual Investors ◽  
Earnings Announcement ◽  
Quarterly Earnings ◽  
Sarbanes Oxley ◽  
The Impact ◽  
Investor Reaction

This study investigates the differential effect of the Sarbanes-Oxley Act of 2002 (“SOX”) on unsophisticated individual investors and sophisticated institutional investors. I examine the relationship between abnormal stock returns around quarterly earnings announcements before and after SOX and investor sophistication. Empirical test results show that SOX positively affected stock returns reaction around the quarterly earnings announcement, consistent with prior literature. However, the increased stock returns reaction in the post-SOX period appears to be unrelated to individual investors. I find that the impact of SOX on institutional investor reaction to earnings announcement is statistically significant, whereas individual investor reaction to earnings announcement is not affected by SOX. This suggests that institutional investors have improved on the extent to which earnings information is efficiently priced after SOX, but not individual investors. These findings are important because the differential effect of the accounting disclosure regulation on investors has received little attention in the literature.

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