Abstract
The study investigates the reaction of investors to annual earnings releases as reflected in the volume and price movements of common stocks during a recession. We provide an apparent example where investors did not react to firm-specific positive earnings announcements. Event methodology is employed, and the returns in an event window, defined conventionally as the day before to two days after a firm-specific public earnings announcement, are not abnormal. The volume of trade in the event window is not atypical either. The psychological impact on the investors was such that fear could not be alleviated by the good news and good financial results.
Highlights
According to Fama (1965), financial markets are termed informationally efficient if security prices react to the announcement of new unanticipated information immediately, accurately, and in the right direction with no subsequent price trends
This study investigates the behaviour of investors towards earnings announcements during tough economic times by observing the trading volume and share price movement on the Macedonian Stock Exchange
The purpose of the study was to investigate whether there are any significant abnormal returns related to the public announcement of earnings and whether the volume is unusual during the recession period
Summary
According to Fama (1965), financial markets are termed informationally efficient if security prices react to the announcement of new unanticipated information immediately, accurately, and in the right direction with no subsequent price trends. Empirical studies have suggested that stock prices do not always accurately reflect available information. The literature argues that earnings announcements are one of the important signalling devices used by managers to transmit information to the public about a firm’s future prospects (Lonie, Abeyratna, Power, & Sinclair, 1996). The literature on earnings informativeness about firm-specific prospects is long established and extensive, beginning with the seminal works by Ball and Brown (1968) and Beaver (1968). Earnings are an interesting phenomenon to observe, because they carry inside information about a company’s future prospects (Aharony & Swary, 1980). The information content of corporate earnings announcements is an issue of obvious importance for investors. It is assumed that such information will be important for investors and reflected in stock price
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