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Price Response to Earnings News: The Effects of Past and Current Market States
Author(s) -
Asem Ebenezer,
Baulkaran Vishaal
Publication year - 2018
Publication title -
journal of corporate accounting and finance
Language(s) - English
Resource type - Journals
eISSN - 1097-0053
pISSN - 1044-8136
DOI - 10.1002/jcaf.22343
Subject(s) - earnings , economics , state (computer science) , monetary economics , market price , accounting , microeconomics , algorithm , computer science
We study whether the price reaction to earnings news is sensitive to the past and the current market states. Following advancing markets, the reaction to positive earnings news is weaker when the market continues advancing than when it transitions to a declining state, while the reaction to negative news is independent of the current market state. Following declining markets, the reaction to negative news is stronger when the market continues declining than when it transitions to an advancing state. In contrast, the reaction to positive news is weaker when the market continues declining than when it transitions to an up state. Our results show that market dynamics is an important determinant of investors' reaction to earnings news.