Abstract

http://ssrn.com/abstract=909563
 
 

References (28)



 
 

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Earnings Announcements are Full of Surprises


Runeet Kishore


Duke University - Fuqua School of Business

Michael W. Brandt


Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Pedro Santa-Clara


New University of Lisbon - Nova School of Business and Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Mohan Venkatachalam


Duke University - Fuqua School of Business

January 22, 2008


Abstract:     
We study the drift in returns of portfolios formed on the basis of the stock price reaction around earnings announcements. The Earnings Announcement Return (EAR) captures the market reaction to unexpected information contained in the company's earnings release. Besides the actual earnings news, this includes unexpected information about sales, margins, investment, and other less tangible information communicated round the earnings announcement. A strategy that buys and sells companies sorted on EAR produces an average abnormal return of 7.55% per year, 1.3%more than a strategy based on the traditional measure of earnings surprise, SUE. The post earnings announcement drift for EAR strategy is stronger than post earnings announcement drift for SUE. More importantly, unlike SUE, the EAR strategy returns do not show a reversal after 3 quarters. The EAR and SUE strategies appear to be independent of each other. A strategy that exploits both pieces of information generates abnormal returns of about 12.5% on an annual basis.

Number of Pages in PDF File: 37

Keywords: post-earnings announcement drift, market efficiency, under-reaction, non-earnings accounting information

JEL Classification: G12, G14

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Date posted: June 19, 2006 ; Last revised: February 25, 2008

Suggested Citation

Kishore, Runeet and Brandt, Michael W. and Santa-Clara, Pedro and Venkatachalam, Mohan, Earnings Announcements are Full of Surprises (January 22, 2008). Available at SSRN: http://ssrn.com/abstract=909563 or http://dx.doi.org/10.2139/ssrn.909563

Contact Information

Runeet Kishore
Duke University - Fuqua School of Business ( email )
Durham, NC 27708-0120
United States
919-660-2942 (Phone)
Michael W. Brandt
Duke University - Fuqua School of Business ( email )
1 Towerview Drive
Durham, NC 27708-0120
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Pedro Santa-Clara (Contact Author)
New University of Lisbon - Nova School of Business and Economics ( email )
Lisbon
Portugal
HOME PAGE: http://docentes.fe.unl.pt/~psc/
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Mohan Venkatachalam
Duke University - Fuqua School of Business ( email )
Box 90120
Durham, NC 27708-0120
United States
919-660-7859 (Phone)
919-660-7971 (Fax)
Feedback to SSRN


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