Testing for asymmetries in price reactions to quarterly earnings announcements on Tallinn, Riga and Vilnius Stock Exchanges during 2000–2009

Abstract

This paper investigates asymmetries in price reactions to quarterly earnings announcements on Tallinn, Riga and Vilnius Stock Exchanges during 2000–2009. The results show weak evidence that the reaction to negative earnings news is lower than to positive news. Earnings response coefficients tend to be the largest in recession and lowest in expansion, but in most cases the differences between them are not big enough to be statistically significant. The results indicate some support for overreaction to bad news in expansion and underreaction to good news in recession. However, due to limitations of this paper arising from the naïve earnings expectations models used and differences in results reported using different state of the economy measures, more powerful tests on more developed markets with better data availability are needed to verify reported tendencies.