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Dispersion Of Beliefs, Stock Prices And The Earnings Surprise Measures-A Generalized Approach, Leon Zolotoy
Dispersion Of Beliefs, Stock Prices And The Earnings Surprise Measures-A Generalized Approach, Leon Zolotoy
Leon Zolotoy
In this paper we address the issue of modelling the relation between the stock prices and accounting earnings in the presence of potential divergence of opinions regarding the earnings data generating process. In our model the market's earnings expectation is defined as the weighted average of both the time-series and analysts' forecasts, with weights being estimated directly from stock returns. No assumptions are made on functional form of the earnings surprise-stock returns relation, which makes our model flexible enough to incorporate a variety of models discussed in the previous literature. The model is estimated semiparametrically following Hardle et al. [Annals …
Hiding "Bad" News On Fridays? Not Such A Good Idea!, Leon Zolotoy
Hiding "Bad" News On Fridays? Not Such A Good Idea!, Leon Zolotoy
Leon Zolotoy
Previous studies reported firms management to release more"bad" news on Fridays compared to the rest of weekdays, potentially exploiting investors limited attention. In this study we examine whether this strategy was detected by investors. Our key findings are as follows. First, consistent with previous studies, we find that over the last two decades firms consistently reported more "bad" news on Friday than during the rest of trading days. Second, we report a structural shift in the earnings-return relation with stock returns becoming more sensitive to the Friday negative earnings news compared to similar announcements released during the rest of the …
Earnings News And Market Risk: Is The Magnitude Of The Post-Earnings Announcement Drift Underestimated?, Leon Zolotoy
Earnings News And Market Risk: Is The Magnitude Of The Post-Earnings Announcement Drift Underestimated?, Leon Zolotoy
Leon Zolotoy
The post-earnings announcement drift is the tendency of cumulative abnormal re- turns to drift in the direction of earnings surprise for several weeks after the earnings news is released. We show that a standard approach of measuring abnormal returns by using pre-announcement estimates of market risk (betas) causes the magnitude of this phenomenon to be significantly underestimated. Our key findings are as follows. First, we find that stock beta tends to rise (fall) following the release of "bad" ("good") earnings news. Second, we find that by not taking into account post-announcement shifts in betas prior studies are likely to underestimate …