Aggregate Market Reaction to Earnings Announcements
William M. Cready
University of Texas at Dallas - Naveen Jindal School of Management
Umit G. Gurun
University of Texas at Dallas
January 15, 2010
Journal of Accounting Research, Forthcoming
This analysis identifies a distinct immediate announcement period negative relation between earnings announcement surprises and aggregate market returns. Such a relation implies that market participants use earnings information in forming expectations about expected aggregate discount rates and, specifically, that good earnings news is associated with a positive shock to required returns. Consistent with this interpretation we find that Treasury bond rates and implied future inflation expectations respond directly to earnings news. We also find some evidence that the negative relation between earnings news and market return persists beyond the immediate announcement period, suggesting that market participants do not immediately fully impound these future market return implications of aggregate earnings news.
Number of Pages in PDF File: 61
Keywords: information content, earnings news, inflation, macro-inefficient market
JEL Classification: G12, G14, M41Accepted Paper Series
Date posted: January 17, 2010 ; Last revised: January 23, 2010
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