The standard finding is that a stock’s cumulative abnormal returns drifts in the direction of an earnings surprise for several weeks following an earnings announcement. Often this was presented as a way to make easy money shorting the negative surprises, going long the positive surprises. Now it seems one leg might have the wrong sign. This highlights one problem with trying to be consistent with all the facts: they aren’t all true.
There’s a newly published paper by Das, Kim and Patro On the Anomalous Stock Price Response to Management Earnings Forecasts. From the abstract:
In the post-announcement period, we find a significant upward price drift for both good news forecasts and bad news forecasts.
Here’s the result in a nutshell, x=0 is time of earnings announcement, the blue line negative surprises, red positive, going out 30 days.
A free early version is here.
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