Stock Market Overreaction to Management Earnings Forecasts

44 Pages Posted: 23 Aug 2013 Last revised: 30 May 2014

Date Written: May 30, 2014


I hypothesize that the stock market overreacts to management earnings forecasts because of the uncertainty surrounding them. I find that negative management forecast surprises lead to a –5.9% abnormal return around the forecast and a 1.9% correction in the 2-month period after earnings are announced. Positive surprises work in the opposite direction, with a 1.9% abnormal return and a –1.7% correction. The level of the stock market overreaction varies with the forecast and firm characteristics, but the marginal impact remains the same: a 1% change in the stock market reaction around the forecast is associated with a 0.4% correction.

Keywords: overreaction, information uncertainty, market efficiency, management forecasts, analyst forecasts

JEL Classification: G02, G12, G14, G24

Suggested Citation

Michel, Jean-Sebastien, Stock Market Overreaction to Management Earnings Forecasts (May 30, 2014). Available at SSRN: or

Jean-Sebastien Michel (Contact Author)

HEC Montreal ( email )

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Montreal, Quebec H3T 2A7
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514-340-5632 (Fax)

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