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| Author | : Dennis J. Chambers |
| Publisher | : |
| Total Pages | : 43 |
| Release | : 2004 |
| Genre | : |
| ISBN | : |
Download Using Earnings Announcement Returns as Evidence of Mispricing Book in PDF, ePub and Kindle
Numerous studies have used the proportion of anomalous returns earned during earnings announcement intervals as evidence to distinguish between risk and mispricing explanations for those returns. This approach implicitly assumes that returns expected as compensation for risk-bearing are earned evenly through time. However, previous research also suggests that expected returns may be higher at earnings announcements than at other times when the flow of firm-specific information between earnings announcements is sparse and the disclosure of earnings is expected to resolve significant uncertainty. We provide evidence that returns are more concentrated at earnings announcements for firms with low information flow than for firms with high information flow. We then demonstrate that earnings announcement returns concentrations associated with the well-known book-to-market returns anomaly are no longer evident after controlling for cross-firm variation in information flow. Overall, our results suggest that before interpreting a concentration of anomalous returns at earnings announcements as evidence of mispricing, care should be taken to insure that the concentration is not related to information flow.
| Author | : Ameer Hassan |
| Publisher | : |
| Total Pages | : 148 |
| Release | : 2011 |
| Genre | : Stock exchanges |
| ISBN | : |
Download Behaviour of Asset Pricing Anomalies Around Earnings Announcements Book in PDF, ePub and Kindle
In support of the efficient market hypothesis, Fama (1998) suggests financial anomalies are nothing but "methodological illusions". Existing literature tests certain anomalies around Earnings Announcements (EAs) and finds that anomalous returns are enhanced around these dates, indicating mispricing. However, due to data limitations, not much work has been done beyond US samples. Extending the existing country specific literature on anomalies, this study tests value/growth and price momentum anomalies around earnings announcements for a sample of 46 non-US countries over a period of ten years (1999-2008). Using robust event study methodology, the study contributes to the literature by providing evidence on anomalies around earnings announcements in an international perspective. The study also contributes by providing a cross-country perspective which allows a test of the impact of certain rules (e.g. various accounting standards) and regulations (e.g. various investor protection regulations) on the size of anomalies and could also help explain the differences (if any) across countries. Because countries with better accounting standards and hence better earnings announcement informativeness have higher value/growth portfolio returns around earnings announcements, the tests on value/growth support the mispricing argument. The case of price momentum is also in conformity with initial results; accounting standards stand out in cross-sectional regressions as well as rule of law and political stability. None of these results can be explained by the risk based argument.
| Author | : Jana P. Fidrmuc |
| Publisher | : |
| Total Pages | : 37 |
| Release | : 2016 |
| Genre | : |
| ISBN | : |
Download Do Insiders Trade on Mispricing After Earnings Announcements? Book in PDF, ePub and Kindle
This paper conjectures that insiders exploit their stock's mispricing after earnings announcements to make profitable trades. We design two sets of tests to provide evidence of insider trading on mispricing of their stock. First, insiders' purchases and sales are profitable both after positive and negative earnings surprises, which indicates that their trading strategies are superior to simple contrarian or momentum trading strategies. Second, we estimate a model of 'normal' market reaction to an earnings announcement and use the deviation of the fitted value from the realized market reaction as our measure of mispricing after earnings announcements. In line with the mispricing hypothesis, we show that insiders sell (buy) more often after large positive (negative) values of our mispricing measure and earn significant post trading returns.
| Author | : Ashiq Ali |
| Publisher | : |
| Total Pages | : 34 |
| Release | : 2003 |
| Genre | : |
| ISBN | : |
Download Residual-Income-Based Valuation Predicts Future Stock Returns Book in PDF, ePub and Kindle
Frankel and Lee (1998) show that the value-to-price ratio (Vf/P) predicts future abnormal returns for up to three years, where Vf is an estimate of fundamental value based on a residual income valuation framework operationalized using analyst earnings forecasts. In this study, we examine whether the Vf/P effect is due to market mispricing or omitted risk factors. We find that the Vf/P effect is partially concentrated around the future earnings announcements, consistent with the mispricing explanation. On using an extensive set of risk proxies, suggested by Gebhardt et al. (2001) and Gode and Mohanram (2001), we also find that Vf/P is significantly related to some risk proxies. However, after controlling for these risk factors, Vf/P continues to exhibit a significant positive association with future returns suggesting that these risk factors are not responsible for the Vf/P effect. Overall, the results seem consistent with the mispricing explanation for the Vf/P effect.
| Author | : Nikolaos Karampatsas |
| Publisher | : |
| Total Pages | : 51 |
| Release | : 2018 |
| Genre | : |
| ISBN | : |
Download Beyond Market Mood Book in PDF, ePub and Kindle
Using a unique database this study establishes a relationship between firm-specific investor sentiment and stock price movements around earnings announcements. We find that firm-specific investor sentiment is a key determinant of price adjustment in the context of an earnings surprise. Unsurprisingly, the effect of firm-specific investor sentiment dominates the effect of market-wide sentiment. We also provide evidence that the effect of firm-specific investor sentiment is more pronounced for stocks that are hard to value and difficult to arbitrage and stock price reactions are most marked for stocks with negative earnings announcements. Further we find evidence of mispricing and return reversals over the days following an earnings surprise.
| Author | : Michael S. Drake |
| Publisher | : |
| Total Pages | : 50 |
| Release | : 2014 |
| Genre | : |
| ISBN | : |
Download The Media and Mispricing Book in PDF, ePub and Kindle
This study investigates the role of the business press in the pricing of accounting information. Using a comprehensive dataset of more than 111,000 earnings-related business press articles published from 2000-2010, we find that press coverage of the annual earnings announcement mitigates cash flow mispricing, but has a negligible effect on accrual mispricing. We provide evidence that this impact is driven primarily by the press disseminating the information more broadly, rather than by the creation of new content that helps investors understand the implications of accounting information. Our results suggest that the business press plays an important role in facilitating the market's ability to efficiently impound accounting information into stock prices and provide new insights into the role of the business press as an information intermediary in capital markets.
| Author | : VICTOR L. BERNARD |
| Publisher | : |
| Total Pages | : 44 |
| Release | : 1992 |
| Genre | : |
| ISBN | : |
Download STOCK PRICE REACTIONS TO EARNINGS ANNOUNCEMENTS: A Book in PDF, ePub and Kindle
| Author | : Leonard Zacks |
| Publisher | : John Wiley & Sons |
| Total Pages | : 352 |
| Release | : 2011-08-24 |
| Genre | : Business & Economics |
| ISBN | : 1118127765 |
Download The Handbook of Equity Market Anomalies Book in PDF, ePub and Kindle
Investment pioneer Len Zacks presents the latest academic research on how to beat the market using equity anomalies The Handbook of Equity Market Anomalies organizes and summarizes research carried out by hundreds of finance and accounting professors over the last twenty years to identify and measure equity market inefficiencies and provides self-directed individual investors with a framework for incorporating the results of this research into their own investment processes. Edited by Len Zacks, CEO of Zacks Investment Research, and written by leading professors who have performed groundbreaking research on specific anomalies, this book succinctly summarizes the most important anomalies that savvy investors have used for decades to beat the market. Some of the anomalies addressed include the accrual anomaly, net stock anomalies, fundamental anomalies, estimate revisions, changes in and levels of broker recommendations, earnings-per-share surprises, insider trading, price momentum and technical analysis, value and size anomalies, and several seasonal anomalies. This reliable resource also provides insights on how to best use the various anomalies in both market neutral and in long investor portfolios. A treasure trove of investment research and wisdom, the book will save you literally thousands of hours by distilling the essence of twenty years of academic research into eleven clear chapters and providing the framework and conviction to develop market-beating strategies. Strips the academic jargon from the research and highlights the actual returns generated by the anomalies, and documented in the academic literature Provides a theoretical framework within which to understand the concepts of risk adjusted returns and market inefficiencies Anomalies are selected by Len Zacks, a pioneer in the field of investing As the founder of Zacks Investment Research, Len Zacks pioneered the concept of the earnings-per-share surprise in 1982 and developed the Zacks Rank, one of the first anomaly-based stock selection tools. Today, his firm manages U.S. equities for individual and institutional investors and provides investment software and investment data to all types of investors. Now, with his new book, he shows you what it takes to build a quant process to outperform an index based on academically documented market inefficiencies and anomalies.
| Author | : Valentin Dimitrov |
| Publisher | : |
| Total Pages | : 55 |
| Release | : 2012 |
| Genre | : |
| ISBN | : |
Download Sell on the News Book in PDF, ePub and Kindle
Miller (1977) hypothesizes that differences of opinion among investors about stock value result in overvaluation so long as some investors are short-sales constrained. Prior evidence on the role of differences of opinion for stock prices has not yielded convincing evidence. We test the Miller hypothesis by focusing on earnings announcements because such announcements generally reduce differences of opinion among investors and, hence, are also likely to reduce overvaluation if the Miller hypothesis is true. We provide statistically significant and economically meaningful evidence in support of the Miller hypothesis. We find that the three-day hedge returns (returns on low minus high differences of opinion stocks) around earnings announcements are 0.2749% (23% annualized) to 0.7132% (60% annualized), depending upon the proxy for differences of opinion. The results are robust to alternative explanations such as the effects of financial leverage, post-earnings-announcement-drift and earnings announcement premium. Additional analysis using institutional ownership as a proxy for short-sales constraints further strengthens our conclusions regarding the Miller hypothesis. We find that the association between differences of opinion and announcement period returns is magnified within the subsample of stocks that are most difficult for investors to sell short.
| Author | : Fanglin Shen |
| Publisher | : |
| Total Pages | : 111 |
| Release | : 2013 |
| Genre | : Stocks |
| ISBN | : |
Download Responses in Divergence of Opinion to Earnings Announcement Book in PDF, ePub and Kindle
The basic asset pricing model is developed under the presumption of homogeneous beliefs; However, Miller (1977) puts forward heterogeneous beliefs along with other early studies. His appealing theoretical verbal model suggests that rather than reflecting the average expectation of all market participants, stock prices reflect the valuation set by the most optimistic investors due to the differences of opinion and short-sales constraints. He predicts the convergence of divergent opinions over time "primarily because the passage of time often resolves certain uncertainties about the future of a company" (Miller 1977, p. 1155). Among the prior empirical studies which provide mixed evidence of Miller hypothesis, the most recent study by Berkman et al. (2009) endeavors to document the negative relationship between excess returns and differences of opinion in a three-day window around earnings announcements when there are binding short-sales constraints. Yet to date there has been little empirical research investigating how divergent opinions affect asset prices of foreign stocks. This dissertation takes a step in this direction. Using the American Depositary Receipts sample, we adopt an event study methodology and use multivariate regressions to examine the host-market response in divergent opinions to the earnings announcements. Overlooked by prior literature, asymmetric reactions to good and bad earnings surprises are allowed in the study. Country-level factors from home market are introduced with firms-characteristic factors to capture the cross-sectional excess returns in the presence of belief dispersion and host-market short-sales constraints. Our sample contains 553 ADRs with 13378 firm-quarter observations from 52 countries. Results from regression analysis show that consistent with Miller hypothesis, quarterly earnings announcements indeed help reduce opinion divergence in ADRs by documenting the negative relation between differences of opinions and excess quarterly earnings announcement returns. Our findings are robust when controlling the financial leverage, illiquidity, analyst forecasts, post-earnings announcement drift and price momentum. Moreover, we find investors do process information asymmetrically based on good and bad earnings shocks when use TURN as the DIVOPN proxy. We observe the price divergence when good earnings are released. Non-news group and bad news group experience the same price convergence. However, we do not find the positive relation between host-market short-sales constraints and excess earnings announcement period returns, even conditioning on home-market short-sales restriction. Last, we include the enforcement of insider trading law, legal origin, investor protection, rating on accounting standard and short-selling feasibility from home market into our baseline model. These home-market country-level factors do not account for our findings.
