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The Evolution of Market Price Efficiency Around Earnings News

55 Pages Posted: 6 Feb 2018 Last revised: 8 Feb 2018

Charles Martineau

Rotman School of Management and UTSC

Date Written: February 3, 2018

Abstract

This paper studies the speed of price discovery following earnings announcements over 40 years. I use earnings surprises and the idiosyncratic volatility on announcement days to examine the responsiveness of stock prices to earnings news. The main contribution of this paper is to show that, for all stocks, financial markets have become more efficient at incorporating earnings news rapidly into stock prices over time. In recent years, after conditioning on earnings surprises, post-earnings announcement drift is almost extinct. The growth in newswire coverage and significant changes in financial regulations coincide with significant improvements in market price efficiency around earnings announcements.

Keywords: earnings announcements, idiosyncractic volatility, market efficiency, price discovery

JEL Classification: G10, G12, G14

Suggested Citation

Martineau, Charles, The Evolution of Market Price Efficiency Around Earnings News (February 3, 2018). Available at SSRN: https://ssrn.com/abstract=3111607 or http://dx.doi.org/10.2139/ssrn.3111607

Charles Martineau (Contact Author)

Rotman School of Management and UTSC ( email )

105 St-George
Toronto, Ontario M5S3E6
Canada

HOME PAGE: http://charlesmartineau.com

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