Abstract

http://ssrn.com/abstract=1965692
 
 

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On the Anomalous Stock Price Response to Management Earnings Forecasts


Somnath Das


University of Illinois at Chicago

Kyonghee Kim


University of Missouri at Columbia

Sukesh Patro


Northern Illinois University

November 1, 2011


Abstract:     
This paper examines stock price formation subsequent to management forecasts of quarterly earnings. In the post-announcement period, we find a significant upward price drift for both good news forecasts and bad news forecasts. The asymmetry in the initial market response and the subsequent upward drift in stock prices are consistent with a reversal of an initial overreaction to managers’ bad news forecasts and a continuation of an initial underreaction to managers’ good news forecasts. This interpretation is supported by a negative (positive) relationship between the initial market response and the post-guidance drift in the bad news (good news) group. The drift pattern is robust to issues arising from measurement. Trading strategies exploiting the post-announcement drift suggest the existence of economically significant trading profits, net of estimated trading costs.

Number of Pages in PDF File: 45

Keywords: Management forecasts, earnings guidance, stock price drift, overreaction, underreaction

JEL Classification: G14, G30, M41

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Date posted: November 29, 2011  

Suggested Citation

Das, Somnath and Kim, Kyonghee and Patro, Sukesh, On the Anomalous Stock Price Response to Management Earnings Forecasts (November 1, 2011). Available at SSRN: http://ssrn.com/abstract=1965692 or http://dx.doi.org/10.2139/ssrn.1965692

Contact Information

Somnath Das
University of Illinois at Chicago ( email )
601 South Morgan Street
Chicago, IL 60607
United States
312-996-4482 (Phone)
312-996-4520 (Fax)
Kyonghee Kim
University of Missouri at Columbia ( email )
332 Cornell Hall
Columbia, MO Columbia 65211
United States
Sukesh Patro (Contact Author)
Northern Illinois University ( email )
236F Barsema Hall
DeKalb, IL 60115
United States
8157531354 (Phone)
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