Aggregate Market Reaction to Earnings Announcements

This analysis identifies a distinct immediate announcement period negative relation between earnings announcement surprises and aggregate market returns. Such a relation implies that market participants use earnings information in forming expectations about expected aggregate discount rates and, spe...

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Bibliographic Details
Published in:Journal of accounting research 2010-05, Vol.48 (2), p.289-334
Main Authors: CREADY, WILLIAM M., GURUN, UMIT G.
Format: Article
Language:English
Subjects:
Accounting research
Cash flow
Coefficients
Discount rates
Earnings
Earnings announcements
Economic expectations
Financial accounting
Financial information
Financial instruments
Financial reporting
Inflation
Inflation rates
Investors
Modeling
News
Regression coefficients
Stock prices
Studies
Surprise
Treasuries
Treasury bills
U.S.A
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Summary:This analysis identifies a distinct immediate announcement period negative relation between earnings announcement surprises and aggregate market returns. Such a relation implies that market participants use earnings information in forming expectations about expected aggregate discount rates and, specifically, that good earnings news is associated with a positive shock to required returns. Consistent with this interpretation we find that Treasury bond rates and implied future inflation expectations respond directly to earnings news. We also find some evidence that the negative relation between earnings news and market return persists beyond the immediate announcement period, suggesting that market participants do not immediately fully impound these future market return implications of aggregate earnings news.
ISSN:0021-8456
1475-679X
DOI:10.1111/j.1475-679X.2010.00368.x