Aggregate Market Reaction to Earnings Announcements
Journal of Accounting Research, Forthcoming
61 Pages Posted: 17 Jan 2010 Last revised: 23 Jan 2010
Date Written: January 15, 2010
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: Suggested Citation