How Markets React to Earnings Announcements in the Absence of Analysts and Institutions: Evidence from the Saudi Market

23 Pages Posted: 28 Nov 2009 Last revised: 2 Dec 2009

See all articles by Ahmed A. Alzahrani

Ahmed A. Alzahrani

Economics and Finance Department,Brunel University; Brunel University London

Date Written: November 26, 2009

Abstract

How stock markets react to news is an established area of research. We examine the behaviour of the Saudi Stock market (SSM) in response to earnings announcements where there are no analysts’ forecasts, with the aim of examining the efficiency of the market. We conduct sector-level analysis to control for government and institutional ownership. The SSM seems to underreact to positive news for the first five days and then reactions tend to strengthen in the following weeks, indicating the presence of a post-earnings announcement drift, or PEAD. At the same time, the SSM overreacts to negative news in the first five days and then reverses its direction and reports an upward post-earnings announcement drift. The individually dominated market combined with the absence of analysts’ forecasts is the main explanation for this underreaction to positive news and overreaction to negative news.

Keywords: PEAD, Analysts’ forecasts, Saudi Stock Market, Over and Under-reaction

JEL Classification: G14, G15, M40

Suggested Citation

Alzahrani, Ahmed A. and Alzahrani, Ahmed A., How Markets React to Earnings Announcements in the Absence of Analysts and Institutions: Evidence from the Saudi Market (November 26, 2009). Available at SSRN: https://ssrn.com/abstract=1513912 or http://dx.doi.org/10.2139/ssrn.1513912

Ahmed A. Alzahrani (Contact Author)

Brunel University London ( email )

Kingston Lane
Uxbridge, Middlesex UB8 3PH
United Kingdom

Economics and Finance Department,Brunel University ( email )

Kingston Lane
Uxbridge, Middlesex UB8 3PH
United Kingdom

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