Chapter 12. Growth Expectations and the Torpedo Effect
Often, analysts refer to companies as either growth companies or value companies. Growth companies have very high expectations for future growth, and value companies have relatively lower growth. In a study by Skinner and Sloan (2002), the authors thought growth expectations might have a significant effect on how the market reacts to a company’s earnings surprises. To test this possibility, the authors examined the market’s reaction to more than 100,000 earnings surprises over a period starting 12 days before fiscal quarter end and ending one day after the quarter’s earnings announcement. This period encompassed both the earnings surprise and almost all earnings preannouncements. They then ...
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