This dissertation provides an investigation of the earnings surprise associated with the quarterly earnings announcement. The examination of a wide variety of forecast models allows insight into the ability of these models to capture the earnings expectations of the market. / The analysis addresses two issues. The first issue is the value of the earnings surprise. Among the forecasts models considered in the examination of forecast accuracy are: (1) a random walk model; (2) the standardized unexpected earnings (SUE) model; (3) three autoregressive integrated moving average (ARIMA) models; (4) an autoregressive conditional heteroskedasticity (ARCH) model; (5) a generalized autoregressive conditional heteroskedasticity (GARCH) model; (6) a price-based model; and (7) four analyst models. / The ARIMA models produce more accurate statistical forecasts than the random walk, SUE, ARCH, GARCH, or price-based models. Further, the analysts' forecasts are more accurate than any statistical alternative. The broader set of information considered by analysts gives them an advantage over statistical models. Further, the ability of the analysts to incorporate recent information gives them a timing advantage. / The second issue is the market response to earnings surprise, where surprise is defined by the different forecast models. The correlation between the forecast errors of the different models and the announcement period response provides evidence of the model that best captures the earnings expectation. The highest correlation is associated with the forecast errors of the most recent analyst forecasts. / Further analysis of the market response forms portfolios based on the most positive and negative earnings surprise securities. This provides insight into the value of the earnings announcement. Positive announcement period abnormal returns are associated with the positive surprise portfolios. In contrast to previous work, the abnormal returns associated with the negative surprise portfolios seldom differ from zero. With respect to the post-announcement period, positive abnormal returns are associated with both the positive and negative earnings surprise portfolios. This anomalous behavior is inconsistent with previous findings. Regardless, the introduction of round-trip transaction costs may eliminate any economic motivation to trade on this information. / Source: Dissertation Abstracts International, Volume: 52-06, Section: A, page: 2230. / Major Professor: Pamela P. Peterson. / Thesis (Ph.D.)--The Florida State University, 1991.
| Identifer | oai:union.ndltd.org:fsu.edu/oai:fsu.digital.flvc.org:fsu_76423 |
| Contributors | Alexander, John C., Jr., Florida State University |
| Source Sets | Florida State University |
| Language | English |
| Detected Language | English |
| Type | Text |
| Format | 200 p. |
| Rights | On campus use only. |
| Relation | Dissertation Abstracts International |
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