The Evolution of Financial Market Efficiency: Evidence from Earnings Announcements

51 Pages Posted: 6 Feb 2018 Last revised: 20 May 2020

See all articles by Charles Martineau

Charles Martineau

University of Toronto - Rotman School of Management and UTSC Management

Date Written: May 18, 2020

Abstract

Stock prices following earnings announcements have become more efficient. Prices on announcement dates incorporate more quickly earnings surprises, leading to the disappearance of post-announcement price drifts. Evidence suggests that trading frictions commonly associated with market inefficiencies following earnings announcements have weakened with the growing presence of sophisticated liquidity providers at processing news. Prices on announcement date further reflect more accurately future prices. The dynamics of market efficiency over time implies that studies about price efficiency be conducted separately over different periods. Aggregating long time-series can highlight the presence of market inefficiencies when, in recent years, such inefficiencies have vanished.

Keywords: earnings announcements, market efficiency, price discovery, price informativeness

JEL Classification: G10, G12, G14

Suggested Citation

Martineau, Charles, The Evolution of Financial Market Efficiency: Evidence from Earnings Announcements (May 18, 2020). Available at SSRN: https://ssrn.com/abstract=3111607 or http://dx.doi.org/10.2139/ssrn.3111607

Charles Martineau (Contact Author)

University of Toronto - Rotman School of Management and UTSC Management ( email )

105 St-George
Toronto, Ontario M5S3E6
Canada

HOME PAGE: http://charlesmartineau.com

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