Market and Analyst Reactions to Earnings News: An Efficiency Comparison
38 Pages Posted: 29 Apr 2004
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: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Optimal Investment, Growth Options, and Security Returns
By Jonathan Berk, Richard C. Green, ...
-
By Lu Zhang
-
A Cross-Sectional Test of a Production-Based Asset Pricing Model
-
Equilibrium Cross-Section of Returns
By Joao F. Gomes, Leonid Kogan, ...
-
Equilibrium Cross-Section of Returns
By Joao F. Gomes, Leonid Kogan, ...
-
Capital Investments and Stock Returns
By K.c. John Wei, Feixue Xie, ...
-
Capital Investments and Stock Returns
By K.c. John Wei, Feixue Xie, ...
-
Corporate Investment and Asset Price Dynamics: Implications for the Cross-Section of Returns
By Murray Carlson, Adlai J. Fisher, ...
-
By Eugene F. Fama and Kenneth R. French