Aggregate Market Reaction to Earnings Announcements

Journal of Accounting Research, Forthcoming

61 Pages Posted: 17 Jan 2010 Last revised: 23 Jan 2010

William M. Cready

University of Texas at Dallas - Naveen Jindal School of Management

Umit G. Gurun

University of Texas at Dallas - Naveen Jindal School of Management

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Date Written: January 15, 2010

Abstract

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.

Keywords: information content, earnings news, inflation, macro-inefficient market

JEL Classification: G12, G14, M41

Suggested Citation

Cready, William M. and Gurun, Umit G., Aggregate Market Reaction to Earnings Announcements (January 15, 2010). Journal of Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1536894

William M. Cready (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

Umit G. Gurun

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

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