Contrarian Share Price Reactions to Earnings Surprises

47 Pages Posted: 3 Jun 2007 Last revised: 24 Jan 2017

See all articles by W. Bruce Johnson

W. Bruce Johnson

University of Iowa - Department of Accounting

Rong Zhao

University of Calgary

Date Written: 2012


A persistent (but overlooked) feature of the cross-sectional distribution of quarterly earnings announcement returns is that the measured earnings surprise and share price response to that surprise are often in the opposite direction. Extending Kinney, Burgstahler and Martin [2002], we provide evidence on the prevalence, determinants, and consequences of contrarian stock returns at the earnings announcement date. Using the most recent I/B/E/S consensus EPS forecast as our earnings benchmark, we find that contrarian returns occur for roughly 40 percent of the more than 230,000 quarterly earnings announcements that comprise our sample. They are only slightly less prevalent in extreme earnings surprise deciles, and are evident each quarter during 1985-2005. The incidence of contrarian returns is statistically related to: “noise” in the measured earnings surprise (stale I/B/E/S consensus forecasts, pre-announcement stock returns, and the presence of GAAP exclusions); and “noise” in the share price response to announced earnings (discordant revenue changes, discordant earnings forecast revisions, return volatility, bid-ask spread and discordant prior quarter earnings surprises). Finally, contrarian stocks exhibit little post-earnings-announcement drift.

Keywords: contrarian stock returns, earnings surprises, post-earnings-announcement drift

JEL Classification: G14, M41

Suggested Citation

Johnson, W. Bruce and Zhao, Rong, Contrarian Share Price Reactions to Earnings Surprises (2012). Journal of Accounting, Auditing and Finance, Vol. 27, No. 2, 2012, Available at SSRN:

W. Bruce Johnson

University of Iowa - Department of Accounting ( email )

108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
319-335-1048 (Phone)
319-335-1956 (Fax)

Rong Zhao (Contact Author)

University of Calgary ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
403-220-2568 (Phone)
403-210-2217 (Fax)

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