Anatomy of Interim Disclosures During Bimodal Return Distributions

Abstract

For over 30 years, observers of financial markets have been puzzled by the behaviour of the market model residuals. This research offers one answer to two of the questions raised by the anomalous behaviour of the residuals. The first is the failure of cumulative abnormal residuals (CARs) to be centred at zero and normally or t distributed. The second is the failure of CARs to be homoscedastic. The authors argue that, in some cases, a bimodal distribution fits the data better. During the period 1985–1993 there were 47 Helsinki Exchanges listed firms having at least one bimodal return distribution after the publication of an interim report. This frequency represents 76% of the total number of firms observed. Bimodality occurs most prominently during the first few days after the event. Internal factors, contained in the interim reports, and external factors, available exogenously, help explain the uncertainty that gives rise to expost bimodality. Sometimes bimodality disappears during the investigation period, while at other times bimodality remains. These findings should promote the use of more sophisticated methods for non-normal return distributions and longer examination periods after the event. On the practical side, these results should help managers refine their communication practices.