The objectives of this thesis are threefold. First, this dissertation examines whether patterns (growth and consistency in growth) of firms' past financial performance influence investors' perceptions about stock values and future performance of these firms. Second, multiple estimation horizons of past performance variables (ranging from one to five years) are used to assess whether the interaction between growth patterns and measurement interval lengths of these variables influence investor expectations. Third, this thesis examines whether an intermediate price drifts (e.g. Jegadeesh and Titman [1993]) and subsequent long-horizon price reversal (e.g. DeBondt and Thaler (1985)] are manifestations of a market over-reaction as suggested in recent studies (e.g. Lee and Swaminathail [2000]).Annual data on sales, earnings, cash flow, and stock returns over various time periods from a sample of publicly traded firms listed on the NYSE, AMEX, and NASDAQ exchanges from 1983 to 1999 are used to address the research questions proposed in this thesis. The evidence provided in this study shows that low-growth firms outperform their high-growth firm counterparts across different performance variables, estimation intervals, and investment horizons except in the first post-formation year for firms ranked by their prior one-year financial growth rate (except for sales growth). These return differentials between low and high growth firms increase uniformly as more years of past financial performance added.Furthermore, when ranking firms based on the consistency of their prior financial growth rates over multiple estimation periods, this study finds that a firm consistently achieving low (high) growth rates that places it in the lowest (highest) growth 40 percent earns high (low) stock returns. The consistency in a firm's prior financial performance influences the behavior of its future stock returns, i.e. the longer the consistency of exceptionally strong (weak) performance of a firm, the greater (lower) its subsequent stock returns. However, the incremental impact of an additional year of growth consistency on future returns seems to dissipate after the third year of prior performance data, suggesting that it may not take investors longer than three years to assume that a firm's past growth will continue for many years to come. Thus, additional evidence confirming investors' prior beliefs will not lead to a significant price drift because their expectations are already reflected in market prices.First year returns for firms except SG exhibit a strong financial drift. The price drift seems to persist even with longer estimation horizons. Multiple regression analyses suggest that reported higher returns for low-growth firms is not due to risk as measured by market betas or book-to-market ratios, nor is it due to the disproportionate impact caused by relatively smaller firms. As well, the one-year-ahead size-adjusted abnormal returns are significantly and negatively related to the size-adjusted abnormal returns for years 2 through 5. This result indicates that the evidence of a price drift reported in the first post-formation year might be due to a market over-reaction, a finding consistent with results reported by Lee and Swaminathan (2000). In additional analysis, return performance for all growth portfolios for the month of January is compared to the remainder of the year. No evidence indicating that returns to these portfolios are driven by extraordinary performance of low-growth firms in the month of January.For all variables (except for past sales growth and to some degree past stock returns), the financial drift in year one return for portfolios based on prior-one year of past performance data, is significantly stronger than that reported in Chan et al. (2004). Results reported in this thesis indicate that the average abnormal return differential between low and high growth firms for the five-year estimation intervals (with exception of past sales growth) is greater than 10 percentage points. The evidence contradicts that documented in Chan et al. (2004). They find no discernable evidence of price reversals over the next 36-months after ranking firms by their five-year growth rates in sales, operating income, and net income. However, results of this study are consistent with the predictions of behavioral models (e.g. Daniel et al. [I998] and Lakonishok et al. [1994]) suggesting that investors put excessive weight on patterns of a firm's past financial performance when projecting its future prospects.

<p>Background: Studying insider trading is difficult due to its sensitive and delicate</p><p>nature. Therefore it is hard to gauge the extent of such activities.</p><p>This problem has resulted in a fierce debate whether it should be</p><p>prohibited or not. Using a method where the effect on monopolistic</p><p>information usage can be isolated insider trading can be monitored.</p><p>Such an event is a profit warning.</p><p>Purpose: This paper examines whether insider trading exist for companies</p><p>making a profit warning between year 2003 and 2007 on the Stockholm</p><p>Stock Exchange. Furthermore the aim with the study is to contribute</p><p>to the debate on the insider trading legislation.</p><p>Method: The study’s purpose is achieved through an event study studying the</p><p>cumulative abnormal return as well as average daily returns during</p><p>the thirty days preceding the warning for a sample of thirty companies.</p><p>Since profit warnings should be completely random and as such</p><p>almost impossible for the market to know in advance, a significant</p><p>abnormal return can only be explained with insider trading. The abnormal</p><p>returns were calculated using the Capital Asset Pricing Model</p><p>since it is the most widely used model.</p><p>Conclusion: For the chosen time frame, when testing on a 95% significance level,</p><p>the study found a significant abnormal return during the last 10 days</p><p>of the event window but not for the entire period of thirty days. The</p><p>daily average return for the thirty companies were significant for six</p><p>of the thirty days within the event window. Two of them were included</p><p>in the last ten day period with a confirmed significant abnormal</p><p>return which might suggest that on average insider trading tend</p><p>to occur during these days. The other four was discarded due to</p><p>sample issues. Since the study was limited to a period of four years</p><p>extending the results to a period other than tested should be made</p><p>with great care since conditions may differ over time. Concerning the</p><p>current debate on the insider legislation, the findings can be used by</p><p>both sides. Either to argue for a strengthening of the law or to question its existence.</p>

Background: Studying insider trading is difficult due to its sensitive and delicate nature. Therefore it is hard to gauge the extent of such activities. This problem has resulted in a fierce debate whether it should be prohibited or not. Using a method where the effect on monopolistic information usage can be isolated insider trading can be monitored. Such an event is a profit warning. Purpose: This paper examines whether insider trading exist for companies making a profit warning between year 2003 and 2007 on the Stockholm Stock Exchange. Furthermore the aim with the study is to contribute to the debate on the insider trading legislation. Method: The study’s purpose is achieved through an event study studying the cumulative abnormal return as well as average daily returns during the thirty days preceding the warning for a sample of thirty companies. Since profit warnings should be completely random and as such almost impossible for the market to know in advance, a significant abnormal return can only be explained with insider trading. The abnormal returns were calculated using the Capital Asset Pricing Model since it is the most widely used model. Conclusion: For the chosen time frame, when testing on a 95% significance level, the study found a significant abnormal return during the last 10 days of the event window but not for the entire period of thirty days. The daily average return for the thirty companies were significant for six of the thirty days within the event window. Two of them were included in the last ten day period with a confirmed significant abnormal return which might suggest that on average insider trading tend to occur during these days. The other four was discarded due to sample issues. Since the study was limited to a period of four years extending the results to a period other than tested should be made with great care since conditions may differ over time. Concerning the current debate on the insider legislation, the findings can be used by both sides. Either to argue for a strengthening of the law or to question its existence.

Background: Studying insider trading is difficult due to its sensitive and delicate nature. Therefore it is hard to gauge the extent of such activities. This problem has resulted in a fierce debate whether it should be prohibited or not. Using a method where the effect on monopolistic information usage can be isolated insider trading can be monitored. Such an event is a profit warning. Purpose: This paper examines whether insider trading exist for companies making a profit warning between year 2003 and 2007 on the Stockholm Stock Exchange. Furthermore the aim with the study is to contribute to the debate on the insider trading legislation. Method: The study’s purpose is achieved through an event study studying the cumulative abnormal return as well as average daily returns during the thirty days preceding the warning for a sample of thirty companies. Since profit warnings should be completely random and as such almost impossible for the market to know in advance, a significant abnormal return can only be explained with insider trading. The abnormal returns were calculated using the Capital Asset Pricing Model since it is the most widely used model. Conclusion: For the chosen time frame, when testing on a 95% significance level, the study found a significant abnormal return during the last 10 days of the event window but not for the entire period of thirty days. The daily average return for the thirty companies were significant for six of the thirty days within the event window. Two of them were included in the last ten day period with a confirmed significant abnormal return which might suggest that on average insider trading tend to occur during these days. The other four was discarded due to sample issues. Since the study was limited to a period of four years extending the results to a period other than tested should be made with great care since conditions may differ over time. Concerning the current debate on the insider legislation, the findings can be used by both sides. Either to argue for a strengthening of the law or to question its existence.

This paper examines whether the phenomena of price drift around quarterly earnings re-leases exist among firms listed on the large cap. list at the Stockholm Stock Exchange for a time period ranging from the first quarter of 2003 to the second quarter of 2006. It fur-thermore examines the ability of the variables forecast error, relative to analyst’s estimates, and firms’ size to explain the variation in price drift among firms. A sample of some 30 firms were drawn in the first three quarters of each year between 2003 and 2005, for the year of 2006 only the fist two quarters were included in the study. For each quarter all firms were classified into three different portfolios on the basis of earnings deviations relative to mean analyst’s estimates (forecast error). The returns for each firm in all portfolios were investigated during 20 days post- and pre quarterly earnings release date, resulting in an event window totaling 41 days. In order to clear out effects from general market movements the Capital Asset Pricing Model, CAPM, was used in which betas were estimated for all firms each quarter. The findings from this study indicate that price drift, measured by cumulative abnormal re-turn, occur for firms with both negative forecast error as well as positive. For firms with positive error, statistically significant positive price drift was found for both the pre- and post period. As for the firms with earnings below analyst’s mean estimates, negative prean-nouncement drift was statistically supported. The ability of firms size and forecast error to explain the variation in price drift on a stock level was very weak, R2 measures of below 5% was reported. However, forecast error was a strongly significant independent variable in the context of the regressions run for both pre- and post-announcement drift. The firms below the lower market cap. quartile in the sample show, on average, lower pre-announcement drift than the firms belonging in the largest quartile. Concerning market efficiency among the large cap. firms the price drift found is an indica-tion of market inefficiency both it terms of the semi strong and the strong form. However, care should be taken before generalizing the results from this study but. Possible misspeci-fication of the equilibrium return model will skew the price drift measurement. Moreover, speculation is not explicitly controlled for in this test. Finally, this study is done within a li-mited time span; hence generalization over time is not possible

<p>Background:</p><p>Studying insider trading is difficult due to its sensitive and delicate nature. Therefore it is hard to gauge the extent of such activities. This problem has resulted in a fierce debate whether it should be prohibited or not. Using a method where the effect on monopolistic information usage can be isolated insider trading can be monitored. Such an event is a profit warning.</p><p>Purpose:</p><p>This paper examines whether insider trading exist for companies</p><p>making a profit warning between year 2003 and 2007 on the Stockholm</p><p>Stock Exchange. Furthermore the aim with the study is to contribute</p><p>to the debate on the insider trading legislation.</p><p>Method:</p><p>The study’s purpose is achieved through an event study studying the</p><p>cumulative abnormal return as well as average daily returns during</p><p>the thirty days preceding the warning for a sample of thirty companies.</p><p>Since profit warnings should be completely random and as such</p><p>almost impossible for the market to know in advance, a significant</p><p>abnormal return can only be explained with insider trading. The abnormal returns were calculated using the Capital Asset Pricing Model</p><p>since it is the most widely used model.</p><p>Conclusion:</p><p>For the chosen time frame, when testing on a 95% significance level,</p><p>the study found a significant abnormal return during the last 10 days</p><p>of the event window but not for the entire period of thirty days. The</p><p>daily average return for the thirty companies were significant for six</p><p>of the thirty days within the event window. Two of them were included</p><p>in the last ten day period with a confirmed significant abnormal</p><p>return which might suggest that on average insider trading tend</p><p>to occur during these days. The other four was discarded due to</p><p>sample issues. Since the study was limited to a period of four years</p><p>extending the results to a period other than tested should be made</p><p>with great care since conditions may differ over time. Concerning the</p><p>current debate on the insider legislation, the findings can be used by</p><p>both sides. Either to argue for a strengthening of the law or to question its existence.</p>

<p>This paper examines whether the phenomena of price drift around quarterly earnings re-leases exist among firms listed on the large cap. list at the Stockholm Stock Exchange for a time period ranging from the first quarter of 2003 to the second quarter of 2006. It fur-thermore examines the ability of the variables forecast error, relative to analyst’s estimates, and firms’ size to explain the variation in price drift among firms.</p><p>A sample of some 30 firms were drawn in the first three quarters of each year between 2003 and 2005, for the year of 2006 only the fist two quarters were included in the study. For each quarter all firms were classified into three different portfolios on the basis of earnings deviations relative to mean analyst’s estimates (forecast error). The returns for each firm in all portfolios were investigated during 20 days post- and pre quarterly earnings release date, resulting in an event window totaling 41 days. In order to clear out effects from general market movements the Capital Asset Pricing Model, CAPM, was used in which betas were estimated for all firms each quarter.</p><p>The findings from this study indicate that price drift, measured by cumulative abnormal re-turn, occur for firms with both negative forecast error as well as positive. For firms with positive error, statistically significant positive price drift was found for both the pre- and post period. As for the firms with earnings below analyst’s mean estimates, negative prean-nouncement drift was statistically supported.</p><p>The ability of firms size and forecast error to explain the variation in price drift on a stock level was very weak, R2 measures of below 5% was reported. However, forecast error was a strongly significant independent variable in the context of the regressions run for both pre- and post-announcement drift. The firms below the lower market cap. quartile in the sample show, on average, lower pre-announcement drift than the firms belonging in the largest quartile.</p><p>Concerning market efficiency among the large cap. firms the price drift found is an indica-tion of market inefficiency both it terms of the semi strong and the strong form. However, care should be taken before generalizing the results from this study but. Possible misspeci-fication of the equilibrium return model will skew the price drift measurement. Moreover, speculation is not explicitly controlled for in this test. Finally, this study is done within a li-mited time span; hence generalization over time is not possible</p>

Bakgrund: Sedan slutet av 1960-talet har flera studier kunnat påvisa drift i aktiepriset efter att ett bolag publicerat en kvartalsrapport, något som benämns som Post-earningsannouncement drift (PEAD). När bolagets resultat varit bättre än det marknaden förväntade sig har aktiepriset fortsatt stiga under en längre period, vilket går emot etablerade hypoteser om en effektiv marknad. Det motsatta har skett när bolaget publicerat ett sämre resultat än vad marknaden förväntat sig. Eftersom den svenska marknaden är relativt outforskad och att den kontinuerligt förändras är det intressant att undersöka om den anomali som nyss beskrivits fortsatt existerar på Stockholmsbörsen, om den går att använda som lönsam investeringsstrategi och huruvida det finns skillnader i aktieprisdrift mellan branscher eftersom det aldrig tidigare studerats. Syfte: Syftet med studien är att analysera huruvida PEAD förekommer på Nasdaq Stockholmsbörsen och om det existerar skillnader i aktieprisdrift mellan branscher under perioden 2014–2018. Studien avser vidare studera om det är möjligt att utforma en lönsam investeringsstrategi baserad på PEAD. Metod: För att uppnå studiens syfte tillämpades en deduktiv ansats och en kvantitativ metod. För att analysera PEAD på Stockholmsbörsen baserades portföljer på Unexpected Earnings (UE) och två modeller benämnda Buy-and-hold-abnormal returns (BHAR) och Calendar-Time regression model (CTP) användes för att illustrera och testa portföljernas avkastning. Resultat: Studiens resultat tyder på att PEAD fortfarande existerar på Stockholmsbörsen, men att resultatet skiljer sig något från tidigare studier. En drift i positiv riktning påvisas i innevarande studie i portföljer av bolag som publicerat såväl bättre som sämre resultat än vad marknaden förväntat sig. I tidigare studier har portföljer av bolag som publicerat sämre resultat än marknaden förväntat sig istället haft en negativ. Vidare visar resultatet att det återfunnits skillnader i drift mellan undersökta branscher och att PEAD sannolikt inte är en lönsam investeringsstrategi. / Background: Since the end of 1960 several studies has indicated a delay in stock price movements after the publishing of a company's interim report. When the earnings of a company were higher than expected, the stock price continued to rise for an extended period, which contradicts the different hypothesis of efficient markets. The opposite effect was observed when the earnings were lower than expected. Due to the limited number of studies regarding PEAD conducted on the Swedish stock market, and the fact that the stock markets are constantly changing, it is interesting to examine and analyze if the anomaly still exists on Stockholmsbörsen. Another point of interest to research is whether it would be possible to earn abnormal returns through a PEAD investment strategy and analyze if there are differences in drift depending on the industry. Aim: The aim of this study is to analyze whether PEAD exists on Nasdaq Stockholmsbörsen and if differences in stock price drift exists between industries during the period 2014-2018. The study further means to study whether it is possible to implement a profitable investment strategy based on PEAD. Methodology: In order to reach the aim of the study a quantitative method and deductive approach were used. In order to analyze PEAD on the Swedish stock market portfolios based on Unexpected Earnings (UE) were formed and two models named Buy-and-hold-abnormal returns (BHAR) and Calendar-Time regression model (CTP) were used in order to illustrate and test the portfolio returns. Results: The results of the study indicated that PEAD exists on Stockholmsbörsen, but that the results differ from previous studies. A positive drift was observed in both the portfolios which were based on positive and negative earnings surprises in relation to the market's expectations. In previous studies the portfolio based on companies which reported negative earnings surprise had a negative drift, which differs from this study’s results. Furthermore, this study’s results indicate that an investment strategy based on PEAD is not profitable and that differences in drift could be observed depending on the industry.