This paper investigates the European CDS markets response to earnings announcements between the years 2011-2013. Through the use of event study methodology, we investigate if the CDS market reacts to earnings news in terms of abnormal spread changes. Furthermore, by exploring the pre- and post announcement window the study examines the efficiency of the CDS market. The results imply that earnings announcements provide valuable information to the CDS market, with statistically significant results on the 5 % and 10 % significant level for negative and positive news respectively. Additionally, the paper shows that the market has a rather symmetric reaction to negative and positive earnings news since there is no significant difference in effects. The paper further reveals that there is no significant difference in the response between different credit rating groups. In terms of market efficiency, the study cannot confirm that there is anticipation for earnings announcements. The study further shows that there is no post-earnings announcement drift in the CDS market and that the market, overall, is efficient in incorporating the information into the spreads. Finally, a cross-sectional regression analysis confirms that negative earnings surprises are linked to large announcement day reactions, while positive earnings surprises are not.

This thesis examines the impact of earnings announcements on the stock return performance. Most literature regarding this topic is related to the US market. We follow 40 of the largest and most liquid stocks on the virtual OMX Nordic Exchange from 2010 to 2012. In this research paper, we present the theoretical framework that gives an overview of the possible research areas, and provide empirical evidence of the repercussion of the earnings announcements on stock returns. We use the event study methodology to conduct this thesis. It is a standard approach established by Fama et al. (1969). It has been used in a variety of researches for gauging the effect of new information on the market value of a security. As we expected good news and bad news to have different reactions on the stock return performances, we have split our data in good news and bad news. To differentiate good news from bad news, we measure analysts’ forecast error. It consists in subtracting the earnings per share (EPS) of the analysts’ consensus forecast from the reported EPS of the same year. The analysis is composed of three different subdivisions: the study of the abnormal return during an event window of 17 days, the cumulative abnormal return during this event window, stock price behavior from growth stocks and from value stocks. Our findings show that stock behavior gradually responds to the earnings announcement. The stock reactions that appear within pre-event window may indicate information leakage. Our results describe most average abnormal returns as statistically insignificant during the event window. Earnings information has a lower impact on the stock market. We also find that the effect of positive earnings surprise on stock price lasts longer than that of negative earnings surprise. Stocks from OMX Nordic 40 index have a stable reaction on negative earnings surprise. As a conclusion, we highlight three points. Earning interim and annual earning information disclosure were unable to influence the stock market effectively, and therefore could not fully reflect the changes on the stock price. Investors can get the abnormal returns by using this earnings information during the whole event window.