Anomalous security price behavior following management earnings forecasts |
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| Institution: | 1. Department of Accountancy, University of Notre Dame, Notre Dame, IN, USA;2. Department of Accountancy, Box 40, Commerce West, University of Illinois at Urbana-Champaign, 1206 S. 6th Street, Champaign, IL 61820, USA;3. National Center for Supercomputing Applications, Urbana-Champaign, IL, USA |
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| Abstract: | This study provides evidence that most of the stock price reactions to bad news management forecasts of annual earnings are reversed in the 60 days following the forecast. In addition, a significant amount of the price reaction to bad news forecasts of quarterly earnings is reversed in the market's reaction to the following quarterly earnings announcement. Unlike the previous overreaction evidence, this study is not subject to the criticisms of beta-shifts, cross-firm comparisons, or lengthy intertemporal comparisons. In addition, the results are robust to include many additional variables that could be hypothesized to affect the observed results. |
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