The Adjustment of Stock Prices to Announcements of Unanticipated Changes in Quarterly Earnings

Price adjustments to the information concerning security valuations that are contained in unexpected "highly favorable" quarterly earnings reports are gradual, rather than instantaneous. Explicit cognizance was taken of some biases present in prior studies. It was shown that the risk-adjus...

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Bibliographic Details
Published in:Journal of accounting research 1977-10, Vol.15 (2), p.207-225
Main Authors: Joy, O. Maurice, Litzenberger, Robert H., McEnally, Richard W.
Format: Article
Language:English
Subjects:
Analysis
Application programming interfaces
Classification schemes
Common stock
Earnings
Efficient markets
Financial securities
Investment return rates
Price level changes
Prices
Sample size
Security prices
Standard and Poors 500 Index
Stock
Stock exchanges
Stock market indices
Stock prices
Time series
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Summary:Price adjustments to the information concerning security valuations that are contained in unexpected "highly favorable" quarterly earnings reports are gradual, rather than instantaneous. Explicit cognizance was taken of some biases present in prior studies. It was shown that the risk-adjusted returns that can be derived from evaluation of quarterly earnings announcements are underestimated when observations are dichotomized solely by the direction of the deviation of reported earnings from expected earnings. The study used trichotomous classification schemes to examine the information contained in the percentage deviation of reported earnings from expected earnings. The classification schemes were extremely naive, and market professionals may employ more elaborate methods of evaluating quarterly earnings announcement information for security valuation purposes. Figures.
ISSN:0021-8456
1475-679X
DOI:10.2307/2490349