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Original Articles

The price momentum and discounting effects on stock prices after earnings announcements: an empirical analysis

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Pages 417-420 | Published online: 14 Jan 2014
 

Abstract

The purpose of this study is to test price momentum and the discounting effects on the stock prices of a firm immediately after its quarterly earnings announcement. The approach is holistic and cross-sectional. The model consists of a series of regressions in which the dependent variables were of several differing durations of price reaction periods and the explanatory variables account for timing effects, price momentum, market co-movement, earnings forecast, analyst effects, forecast revisions, earnings surprises and sectoral differences. There is evidence that points to mid- and long-term momentum that extend a day or two after the earnings release. After that point, there seems to be a net discounting effect. That is, there is evidence of an inverse relationship between the price change prior to the earnings announcement and the price change after the earnings announcement.

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