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Aggregate Market Reaction to Earnings Announcements

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  • WILLIAM M. CREADY
  • UMIT G. GURUN

Abstract

ABSTRACT 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. Copyright (c), University of Chicago on behalf of the Accounting Research Center, 2010.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Accounting Research.

Volume (Year): 48 (2010)
Issue (Month): 2 (05)
Pages: 289-334

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Handle: RePEc:bla:joares:v:48:y:2010:i:2:p:289-334

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Cited by:
  1. Vasileios Barmpoutis, 2014. "The Naive Extrapolation Hypothesis and the Rosy-Gloomy Forecasts," Papers 1406.1733, arXiv.org.
  2. Panos Patatoukas & Hongjun Yan, 2009. "The Impact of Earnings Surprises on Stock Returns: Theory and Evidence," Yale School of Management Working Papers, Yale School of Management amz2517, Yale School of Management.
  3. Christiane Pott & Tobias Tebben & Christoph Watrin, 2014. "The effect of outside directors’ and auditors’ incentives on managers’ ability to manage cash bonuses," Journal of Management and Governance, Springer, Springer, vol. 18(2), pages 505-540, May.
  4. Afego, Pyemo, 2011. "Stock Price Response to Earnings Announcements: Evidence from the Nigerian Stock Market," MPRA Paper 33931, University Library of Munich, Germany, revised 16 May 2011.

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