How Important are Earnings Announcements as an Information Source?*
46 Pages Posted: 3 Sep 2009
Date Written: September 1, 2009
Earnings announcement days on average provide more information to the stock market than any other days in each quarter. In particular, the proportions of the variation in annual returns explained by returns on days with dividend announcements, management forecasts, preannouncements, or 10-K and 10-Q filings are consistently lower than the 11% explained by earnings announcement days. Only the largest realized absolute daily returns in a quarter match the ability of earnings announcement returns to explain annual returns. We conclude that earnings announcements are individually the most important source of new information in the equity market. Earnings announcement days are likely to remain a preferred setting for testing theories about production, dissemination, and use of information (both accounting and non-accounting) in the equity market.
Keywords: Earnings information arrival days, conditional information content, information monopoly
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