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.
| Identifer | oai:union.ndltd.org:UPSALLA1/oai:DiVA.org:umu-56958 |
| Date | January 2012 |
| Creators | Wang, Chenxi, King Phet, Gerky |
| Publisher | Umeå universitet, Företagsekonomi, Umeå universitet, Företagsekonomi |
| Source Sets | DiVA Archive at Upsalla University |
| Language | English |
| Detected Language | English |
| Type | Student thesis, info:eu-repo/semantics/bachelorThesis, text |
| Format | application/pdf |
| Rights | info:eu-repo/semantics/openAccess |
Page generated in 0.0022 seconds