Earnings announcements and the variability of stock returns |
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| Affiliation: | 1. Department of Accounting, Auditing and Law, Norwegian School of Economics and Business Administration, Helleveien 30, N-5045 Bergen, Norway;2. Foundation for Research in Economics and Business Administration, Norwegian School of Economics and Business Administration, Helleveien 30, N-5045 Bergen, Norway;3. Department of Finance and Management Science and Foundation for Research in Economics and Business Administration, Norwegian School of Economics and Business Administration, Helleveien 30, N-5045 Bergen, Norway;1. Construction Technologies Institute, Italian National Research Council, via Lombardia 49-20098 San Giuliano Milanese (MI), Italy;2. Engineering Department University of Naples “Parthenope”, Isola C4, Centro Direzionale, 80143 Naples, Italy;3. University of Cassino and Southern Lazio, Department of Civil and Mechanical Engineering, V. Di Biasio 43, Cassino, 03043, Italy;1. Norwegian School of Hotel Management, University of Stavanger, 4036 Stavanger, Norway;2. UiS Business School, University of Stavanger, 4036 Stavanger, Norway |
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| Abstract: | This article is concerned with the dissemination process of firm-specific annual earnings information in the Norwegian capital market. We find a significant reduction in stock price volatility in the post-announcement period relative to the pre-announcement period for companies traded on the Oslo Stock Exchange in the period 1990–1995. Potential explanations for this phenomenon are tested by relating the observed return volatility to changes in the volatility of the underlying business, the speed at which information is incorporated into stock prices, and the amount of noise in the price process. The empirical analyses reveal no significant changes in either the underlying business variance or the price adjustment coefficients. However, we find a significant decline in the noise term for the largest companies after the earnings release date, supporting the hypothesis that earnings announcements reduce informational asymmetries among investors. |
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