[Research Seminar] Convergence of Beliefs after earnings Announcements
Speaker: Garen MARKARIAN
HEC, UNIVERSITY OF LAUSANNE
Date and Location – Tuesday March 28th 2024 from 2:30pm to 4pm
in Lille Campus (B252) and on Zoom
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ABSTRACT
I propose a new and easy to calculate measure that captures the conversion of beliefs of market participants after earnings announcements. I define “Completely Unforeseen Earnings” as earnings that fall outside the range of consensus analyst forecasts. Such earnings have become very common and constitute 48% of all earnings announcements in the most recent 3 year period. Holding the magnitude
of the earnings surprise constant, completely unforeseen earnings lead to a 3 day stock return that is almost twice as strong as earnings that fall within the range of forecasts. Moreover, such firms exhibit significant post earnings announcement drift of 1.65%, while other firms exhibit no drift. Completely unforeseen earnings lead to belief revisions that are large in magnitude and in the direction of the earnings innovation, that occur over a gradual period, and lead to prolonged increases in dispersion.