How Important are Earnings Announcements as an Information Source?
Author | : Sudipta Basu |
Publisher | : |
Total Pages | : 40 |
Release | : 2015 |
ISBN-10 | : OCLC:1308743383 |
ISBN-13 | : |
Rating | : 4/5 ( Downloads) |
Download or read book How Important are Earnings Announcements as an Information Source? written by Sudipta Basu and published by . This book was released on 2015 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: In a competitive information market, a single information source can only dominate other sources individually, not collectively. We explore whether earnings announcements constitute such a dominant source using Ball and Shivakumar's (2008) R2 metric: the proportion of the variation in annual returns explained by the four quarterly earnings announcement returns. We find that the earnings announcement days' R2 is 11 percent -- higher than the corresponding R2 of days with dividend announcements, management forecasts, preannouncements, 10-K and 10-Q filings, and their amendments, and comparable to that of the four days with largest realized absolute return in a year. Additional analysis reveals that earnings announcements convey extreme bad news as often as management forecasts and preannouncements; for any other type of news earnings announcements are much more frequent. We conclude that earnings announcements are an important source of new information in the equity market.