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Earnings Announcements, Analyst Forecasts, and Trading Volume

송민섭
경영연구소 (Management Research Center)|2013.12|Seoul Journal of Business|제19권 제2호|pp. 1-44|DOI 10.35152/snusjb.2013.19.2.001

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키워드

trading volumeanalyst forecastearnings announcementforecast timingstock price reaction

초록

Empirical evidence shows that a significant proportion of analysts issue their forecasts at the time of an earnings announcement (Ivković and Jegadeesh 2004). These forecasts are commonly regarded as analyst interpretations of earnings news contained in the announcement (Schipper 1991). Although analytical studies suggest that market reaction to news from earnings announcement could be affected by analysts’ interpretation information (Kim and Verrecchia 1994, 1997), the vast majority of previous research has ignored whether and how these analysts’ interpreting forecasts affect the market reaction to the earnings announcements. Our empirical results show that sensitivity of trading volume reaction to earnings announcements is increasing in the number of announcement period analyst forecasts. The sensitivity of trading volume reaction is greater when there is small analyst forecast dispersion. We also find that stock return sensitivity is also increasing with the number of analyst forecasts. In general, our results suggests that analysts’ interpretation help disseminate new information contained in earnings announcement to the market.

Abstract

Empirical evidence shows that a significant proportion of analysts issue their forecasts at the time of an earnings announcement (Ivković and Jegadeesh 2004). These forecasts are commonly regarded as analyst interpretations of earnings news contained in the announcement (Schipper 1991). Although analytical studies suggest that market reaction to news from earnings announcement could be affected by analysts’ interpretation information (Kim and Verrecchia 1994, 1997), the vast majority of previous research has ignored whether and how these analysts’ interpreting forecasts affect the market reaction to the earnings announcements. Our empirical results show that sensitivity of trading volume reaction to earnings announcements is increasing in the number of announcement period analyst forecasts. The sensitivity of trading volume reaction is greater when there is small analyst forecast dispersion. We also find that stock return sensitivity is also increasing with the number of analyst forecasts. In general, our results suggests that analysts’ interpretation help disseminate new information contained in earnings announcement to the market.

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