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Does the Stock Market Overreact to Corporate Earnings Information?

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Author Info
 Zarowin, Paul
Abstract

This paper tests whether the stock market overreacts to extreme earnings, by examining firms' stock returns over the thirty-six months subsequent to extreme earnings years. While the poorest earners do outperform the best earners, the poorest earners are also significantly smaller than the best earners. When poor earners are matched with good earners of equal size, there is little evidence of differential performance. This suggests that size, and not investor overreaction to earnings, is responsible for the "overreaction" phenomenon, the tendency for prior period losers to outperform prior period winners in the subsequent period. Copyright 1989 by American Finance Association.

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Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 44 (1989)
Issue (Month): 5 (December)
Pages: 1385-99
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Handle: RePEc:bla:jfinan:v:44:y:1989:i:5:p:1385-99

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  1. Gabriel Hawawini & Donald B. Keim, . "The Cross Section of Common Stock Returns: A Review of the Evidence and Some New Findings," Rodney L. White Center for Financial Research Working Papers 08-99, Wharton School Rodney L. White Center for Financial Research. [Downloadable!]
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  2. Jean-François Gajewski, Bertrand P. Quéré, 2001. "The information content of earnings and turnover announcements in France," European Accounting Review, Taylor and Francis Journals, vol. 10(4), pages 679-704, December. [Downloadable!] (restricted)
  3. Pier Luigi Sacco, 1991. "Rationality And Stock Market Behavior: What Theoretical Framework (If Any?)," International Economic Journal, Korean International Economic Association, vol. 5(4), pages 17-41, December. [Downloadable!] (restricted)
  4. Foort, HAMELINK, 1998. "Systematic Patterns Before and After Large Price Changes: Evidence from High Frequency Data from the Paris Bourse," Les Cahiers de Recherche 655, Groupe HEC. [Downloadable!]
  5. Nicholas Barberis & Andrei Shleifer & Robert W. Vishny, 1997. "A Model of Investor Sentiment," NBER Working Papers 5926, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Bradford Cornell, 2000. "Valuing Intel: A Strange Tale of Analysts and Announcements," University of California at Los Angeles, Anderson Graduate School of Management 1077, Anderson Graduate School of Management, UCLA. [Downloadable!]
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