The Semi Strong Form Of The Market Efficiency Hypothesis And The Post Earnings Announcement Drift On Swiss Stock Markets PDF Download

This thesis analyses the announcement effect of profit warnings in the Swiss Stock Market between 2002 and 2012 by using the Carhart (1997) four-factor model and tests the influence of stock uncertainty and precision of news on the magnitude of the announcement effect. Depending on the event window, the results of the analysis are very different. During the period prior to the announcement, no anticipation or insider trading can be measured. Thus, during this period, the Swiss Stock Market seems to behave efficiently. During the main announcement window, e.g. the day of the announcement and one day after, a large announcement effect of -11% abnormal return can be measured. Once again, this points towards an efficient market reaction. However, following this main announcement window, a short-term drift of up to 19 trading days after the announcement can be measured. This short-term drift proves to be especially strong for stocks of high uncertainty firms, such as young or small firms. Using a short-selling short-term drift exploitation portfolio, investors could have earned high risk-adjusted profits that exceed by far the returns of an investment in the SPI. Thus, over the short-term, the Swiss Stock Market behaves inefficiently. Over the long-term, a long-term reversal could be measured, however only with low significance. While the short-term drift was most likely due to inefficient market behaviour, it is suggested that the long-term drift represents the efficient market reaction to new positive news of warning firms, which successfully entered into recovery. In line with this interpretation, it was shown that a trading strategy aiming to exploit the long-term drift would not have gained any risk-adjusted profits in comparison with the SPI. Thus, over the long-term, the Swiss Stock Market behaves efficiently. Finally, it was found that the market reacts stronger to quantitative warnings than to qualitative warnings. It is sug.