Earnings announcements by UK companies: Evidence of extreme events?

Abstract

This paper investigates the abnormal share return dispersion occurring when companies announce their interim or final earnings. Whereas, prior research has focused on abnormal returns, little attention has been given to investigating the dispersion of the abnormal returns. We find strong empirical evidence supporting an abnormal dispersion of share returns on event dates. Moreover, we find that these public announcements are sources of extreme share price movements. Our study provides a step forward in identifying factors underlying the leptokurtosis that is traditionally found in time series stock market returns. Our data sample is comprised of interim and full year results for mid-to-large capitalisation UK companies for the period 1984–2005. Consistent with the extant literature on this subject, we find no evidence of market inefficiency around the event date, or straightforward arbitrage opportunities on the event date. However, we find using Paretian statistics that the abnormal return dispersion on the event date is three times higher than on normal non-event days.