The Evolution of Market Price Efficiency Around Earnings News

49 Pages Posted: 6 Feb 2018 Last revised: 7 Jun 2018

Charles Martineau

University of Toronto

Date Written: May 29, 2018

Abstract

This paper studies the evolution of market price efficiency around earnings announcements over 40 years. Today, the post-earnings announcement drift following earnings surprises is almost extinct. On announcement days, prices now incorporate private information faster, as evidenced by higher idiosyncratic volatility (price nonsynchronicity). Improvements in price efficiency following earnings announcements coincide with the proliferation of newswire coverage and financial regulatory events. In particular, the implementation of the Sarbanes-Oxley Act corresponds to an abrupt and permanent increase in idiosyncratic volatility on announcement days. These findings shed new light on the recent theory of market price efficiency.

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 (May 29, 2018). Available at SSRN: https://ssrn.com/abstract=3111607 or http://dx.doi.org/10.2139/ssrn.3111607

Charles Martineau (Contact Author)

University of Toronto ( email )

105 St-George
Toronto, Ontario M5S3E6
Canada

HOME PAGE: http://charlesmartineau.com

Register to save articles to
your library

Register

Paper statistics

Downloads
114
rank
226,673
Abstract Views
547
PlumX