How important are earnings announcements as an information source?
In a competitive information market, no single information source is likely to dominate all other sources collectively, but a single source can dominate all or most other sources individually. We explore whether earnings announcements constitute such a dominant source using Ball and Shivakumar’s R2...
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| Main Authors: | , , , |
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| Format: | text |
| Language: | English |
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Institutional Knowledge at Singapore Management University
2013
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| Subjects: | |
| Online Access: | https://ink.library.smu.edu.sg/lkcsb_research/2962 https://ink.library.smu.edu.sg/context/lkcsb_research/article/3961/viewcontent/SSRN_id1616466.pdf |
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| Institution: | Singapore Management University |
| Language: | English |
| Summary: | In a competitive information market, no single information source is likely to dominate all other sources collectively, but a single source can dominate all or most other sources individually. We explore whether earnings announcements constitute such a dominant source using Ball and Shivakumar’s R2 metric: the proportion of the variation in annual returns explained by earnings announcement returns. We find that earnings announcement R2 is 11% -- higher than the corresponding R2 of returns on days with dividend announcements, management forecasts, preannouncements, 10-K and 10-Q filings and amendments. Only the four largest realized absolute daily returns in a year match the ability of earnings announcement returns to explain annual returns. We conclude that earnings announcements are the single most important source of new information in the equity market. |
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