The share is down 8% after the profit warning, is it time to buy?

Abstract

Variables explaining the market response to a profit warning are of interest to both market participants and the managers of the firm. Several variables have been used in previous research to explain the market response to profit warnings with varying outcomes. This study uses a framework of surprise and risk to explain the market response and tests it on a sample of 474 profit warnings collected from Nasdaq OMX Nordic. The findings show that surprise and risk variables can be used to estimate the size of the market response to a profit warning.

Keywords:

• profit warnings
• market response

JEL Classification:

• G14

Acknowledgements

This article benefitted from comments from professors Tom Berglund, Bo-Göran Ekholm and Pontus Troberg.

Funding

The author gratefully acknowledges financial support from Stiftelsen för främjandet av värdepappersmarknaden i Finland.