Chapter 6. Market Reactions to Earnings Surprises (Are Full of Surprises)
In many ways, we consider this chapter to be the intellectual and theoretical heart of our book. In the previous chapter, we examined the market reactions to earnings announcements without considering the actual content of the announcements. In other words, did a positive or negative earnings surprise occur? This chapter investigates market reactions considering this directional aspect of earnings surprises. We think you’ll find the results quite surprising. What we find is that almost half of all earnings surprises are met with market reactions that go in the opposite direction. Sure, we’ve all noticed the occasional positive earnings surprise that the market then punished ...
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