Trading on Corporate Earnings News: Profiting from Targeted, Short-Term Options Positions

Chapter 4. Earnings Surprises: Empirical Evidence

In the preceding chapter, we discussed many of the difficulties that arise when trying to define and measure the concept of an earnings surprise. On the surface this is a simple endeavor, but in reality it’s rife with ambiguities. In this chapter, we conduct original research by gathering the actual earnings surprises of the largest 1,000 publicly traded companies over a 25-year span. We examine the nature of these earning surprises—in particular, their cross-sectional distribution. We also examine how earnings surprises have changed over time by examining the time-series trend in these surprises over the past 100 quarters. Overall, the empirical evidence sheds light on the significant role that ...