Market and Analyst Reactions to Earnings News: An Efficiency Comparison

38 Pages Posted: 29 Apr 2004

See all articles by Jing Liu

Jing Liu

The Cheung Kong Graduate School of Business

Abstract

This study compares the efficiency with which the stock market and financial analysts react to corporate earnings announcements. Results show that the market is more efficient and reacts more rapidly to earnings news than financial analysts. In particular, in pre-announcement quarters (inclusive of announcement day), the market reacts more than analysts, and in post-announcement quarters, analysts gradually catch up. This result is robust across all measures of analyst earnings forecasts and under alternative specifications. Results further show that prior research reached the opposite conclusion because of two questionable research design choices: 1) limiting the window to the first post-announcement quarter (a window too narrow to capture market or analysts' complete reactions); and 2) consideration of just one-quarter-ahead earnings forecasts (an approach that ignores forecasts at other horizons).

Keywords: Post-earnings-announcement drift, market efficiency, analyst forecasts

JEL Classification: G14, G29, M41

Suggested Citation

Liu, Jing, Market and Analyst Reactions to Earnings News: An Efficiency Comparison. Available at SSRN: https://ssrn.com/abstract=537003 or http://dx.doi.org/10.2139/ssrn.537003

Jing Liu (Contact Author)

The Cheung Kong Graduate School of Business ( email )

1 East Changan Avenue, Oriental Plaza
E3/3F
Beijing
China

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