Beyond earnings surprise: Incremental information about future earnings around earnings announcement
We create two quantitative measures of forward-looking information disclosed by firms in addition to the announced earnings during the announcement period. These two variables are time horizon dependent: one for near term future earnings and the other for longer-term future earnings. They are extracted from revisions in analyst forecasts of future earnings and are orthogonal to earnings surprise. We obtain several new empirical results. 1) The R2 of the abnormal return regression doubles after including the two new forward information variables in addition to earnings surprise. Thus, earnings surprise is not the only source of new information, news releases and conference calls around this period are shown to contain relevant forward information. 2) Stock price of firms that are larger, receive greater analyst coverage, and have lower trading costs exhibits greater anticipation of forward earnings information prior to earnings announcement. 3) Price of these firms adjusts to new information much faster as well. Market’s acquisition of forward information is a function of the demand for information and the ease in cashing in the new information through trading. 4) Since our technique allows us to decompose information in this period into three independent components, we apply it to study the time variation in price response to different information variables before, around, and after the stock market bubble in 1999-2000. We observe an increasingly greater emphasis by the stock market on earnings surprise and short-term information leading to and during the bubble period. The observation that the market overreacts to short-term earnings provides part of the explanations why prices could deviate far from their fundamental values in the bubble period. It is consistent with a framework in which short horizon investors are taking over as the marginal investors. The underlying foundation may be traced to behavioral finance such as short memory, representativeness and availability biases that would lead many investors to put too much weight on short term information.
Forward information Analyst forecast Bubble Earnings surprise Price response
James S. Ang Shaojun Zhang
Department of Finance College of Business Florida State University Tallahassee, FL 32306, USA Division of Banking and Finance Nanyang Business School Nanyang Technological University Singapore 6
国际会议
西安
英文
1-73
2006-07-17（万方平台首次上网日期，不代表论文的发表时间）