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Quarterly Earnings Releases, Expectations, and Price Behavior

Quarterly Earnings Releases, Expectations, and Price Behavior. Sam Lim. Set-up. Purpose: to explore the relationship between analyst expectations, quarterly earnings releases, and stock price behavior.

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Quarterly Earnings Releases, Expectations, and Price Behavior

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  1. Quarterly Earnings Releases, Expectations, and Price Behavior Sam Lim

  2. Set-up • Purpose: to explore the relationship between analyst expectations, quarterly earnings releases, and stock price behavior. • Analyst earnings estimates and actual earnings obtained from Wharton’s WRDS, from the I/B/E/S database. • Release time of quarterly earnings announcement (BMO or AMC) obtained from Earnings.com

  3. Set-up (continued) • HAR-RV Model • RV is annualized • Earnings surprise factor (percentage) • ( EPSactual - EPSestimate ) / EPSactual * 100 • Run HAR-RV adding the surprise factor as a regressor. On days of quarterly earnings announcements (the day after, if announcements are made AMC), SURPRISE = surprise factor. Otherwise, SURPRISE = 0.

  4. Chevron (CVX) • Prices sampled every 10 minutes • Data from 10/10/2001 to 01/07/2009 (1804 days), 26 quarterly earnings releases (BMO)

  5. Chevron (CVX) • Split-sign regression – Are the effects of negative surprises different from positive surprises? • CVX – 12 positive surprises, 13 negative surprises

  6. Amazon (AMZN) • Prices sampled every 5 minutes • Data from 08/01/1997 to 01/07/2009 (2846 days), 42 earnings releases (AMC), 14 positive surprises, 23 negative surprises • Surprise days not properly lagged

  7. Amazon (AMZN) • Surprise days lagged one day to account for AMC announcements

  8. Pepsi (PEP) • Prices sampled every 5 minutes • Data from 04/09/1997 to 01/07/2009 (2925 days), 66 earnings releases (BMO), 24 positive surprises, 8 negative surprises

  9. Chevron (CVX) • Overnight returns • ln(price at market open) – ln(price at market close from previous day)

  10. Chevron (CVX) • Intraday Returns • Sum of returns within the day • Increase in volatility not from everyone selling after negative surprises…

  11. Chevron (CVX) • BNS Jump Test (Quad Power, Ratio-max adjusted) • Percentage of Jump days • No big difference – lagging has no real results either • volatility increase not from jumps • Though there could be intraday jumps…

  12. Amazon (AMZN) • Overnight Returns • Intraday Returns • Sign-split regression oddities?

  13. Pepsi (PEP) • Similar results as Amazon regressions. • Regressing overnight returns with surprise – statistically significant, positive relationship (p-value is nearly 0) • Regressing intraday returns with surprise – statistically insignificant, slightly negative relationship(p-value .15) • However, split-sign regression yields positive relationship significant at 10% level, but only for positive surprises (not stat. sig. for negative surprises)

  14. Pfizer (PFE) • Prices sampled every 5 minutes • Data from 04/09/1997 to 01/07/2009 (2923 days), 43 earnings releases (BMO), 31 positive surprises, 6 negative surprises

  15. Bank of America (BAC) • Prices sampled every 15 minutes • Data from 04/09/1997 to 01/07/2009 (2923 days), 42 earnings releases (mostly BMO), 31 positive surprises, 7 negative surprises

  16. Further analysis • Try Lee-Mykland test for jumps, to see if there are intraday jumps occurring. • Account for dispersion in analyst expectations. • Try to find what is the norm/exception (Chevron has the nicest results, is this the norm or exception?) • If Chevron’s results are the norm, how long does this uncertainty after a earnings surprise last? • Incorporate other stock-specific news announcements to see effect on stock price behavior (similar to Alison Keane’s research on macroeconomic news announcements) • Continuing with the effects of analysts theme, perhaps look at analyst recommendations (buy/hold) and stock behavior.

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