Quarterly Earnings Releases, Expectations, and Price Behavior

Sam Lim

Set-up Purpose: to explore the relationship between

analyst expectations, quarterly earnings releases, and stock price behavior.

Analyst earnings estimates and actual earnings obtained from Wharton’s WRDS, from the I/B/E/S database.

Release time of quarterly earnings announcement (BMO or AMC) obtained from Earnings.com

Set-up (continued) HAR-RV Model

RV is annualized

Earnings surprise factor (percentage) ( EPSactual

- EPSestimate ) / EPSactual * 100

Run HAR-RV adding the surprise factor as a regressor. On days of quarterly earnings announcements (the day after, if announcements are made AMC), SURPRISE = surprise factor. Otherwise, SURPRISE = 0.

Chevron (CVX) Prices sampled every 10 minutes Data from 10/10/2001 to 01/07/2009 (1804

days), 26 quarterly earnings releases (BMO)

RVt+1 Coeff Std. Error P-value

RVt .278 .029 0.000

RVt-5,t .584 .044 0.000

RVt-22,t .073 .034 0.033

SURPRISE -.044 .023 0.062constant .349 .094 0.000

Chevron (CVX) Split-sign regression – Are the effects of

negative surprises different from positive surprises?

CVX – 12 positive surprises, 13 negative surprisesRVt+1 Coeff Std. Error P-value

RVt .277 .029 0.000

RVt-5,t .583 .044 0.000

RVt-22,t .075 .034 0.029

SURPRISE(+) .010 .038 0.787SURPRISE(-) -.077 .030 0.010constant .338 .094 0.000

Amazon (AMZN) Prices sampled every 5 minutes Data from 08/01/1997 to 01/07/2009 (2846

days), 42 earnings releases (AMC), 14 positive surprises, 23 negative surprises

Surprise days not properly laggedRVt+1 Coeff Std. Error P-value

RVt .301 .022 0.000

RVt-5,t .302 .038 0.000

RVt-22,t .337 .035 0.000

SURPRISE(+) .024 .022 0.294SURPRISE(-) -.010 .018 0.601constant .749 .218 0.000

Amazon (AMZN) Surprise days lagged one day to account for

AMC announcements

RVt+1 Coeff Std. Error P-value

RVt .300 .022 0.000

RVt-5,t .302 .038 0.000

RVt-22,t .337 .034 0.000

SURPRISE(+) .027 .022 0.238SURPRISE(-) -.046 .018 0.012constant .749 .218 0.001

Pepsi (PEP) Prices sampled every 5 minutes Data from 04/09/1997 to 01/07/2009 (2925

days), 66 earnings releases (BMO), 24 positive surprises, 8 negative surprises

RVt+1 Coeff Std. Error P-value

RVt .313 .022 0.000

RVt-5,t .287 .038 0.000

RVt-22,t .315 .035 0.000

SURPRISE(+) .120 .041 0.003SURPRISE(-) -.091 .106 0.390constant .491 .112 0.000

Chevron (CVX) Overnight returns

ln(price at market open) – ln(price at market close from previous day)

ONReturn Coeff Std. Error P-valueSURPRISE(+) .00019 .00016 0.247SURPRISE(-) .00050 .00015 0.001constant .00031 .00021 0.140

Chevron (CVX) Intraday Returns

Sum of returns within the day

Increase in volatility not from everyone selling after negative surprises…

Return Coeff Std. Error P-valueSURPRISE(+) .00030 .00027 0.261SURPRISE(-) .00017 .00024 0.473constant .00031 .00021 0.783

Chevron (CVX) BNS Jump Test (Quad Power, Ratio-max

adjusted) Percentage of Jump days No big difference – lagging has no real results

either volatility increase not from jumps

Though there could be intraday jumps…BNS Z-Score .1% 1% 5%All days 1.94 5.88 14.36Earnings Rel. days 0 3.85 15.38Not ER days 1.91 5.74 14.23

Amazon (AMZN) Overnight Returns

Intraday Returns

Sign-split regression oddities?

ONReturn Coeff Std. Error P-valueSURPRISE(+) .00062 .00027 0.000SURPRISE(-) .00026 .00024 0.007constant .00000 .00052 0.994

Return Coeff Std. Error P-valueSURPRISE(+) .00027 .00016 0.096SURPRISE(-) -.00004 .00013 0.762constant .00071 .00072 0.319

Pepsi (PEP) Similar results as Amazon regressions. Regressing overnight returns with surprise –

statistically significant, positive relationship (p-value is nearly 0)

Regressing intraday returns with surprise – statistically insignificant, slightly negative relationship(p-value .15) However, split-sign regression yields positive

relationship significant at 10% level, but only for positive surprises (not stat. sig. for negative surprises)

Pfizer (PFE) Prices sampled every 5 minutes Data from 04/09/1997 to 01/07/2009 (2923

days), 43 earnings releases (BMO), 31 positive surprises, 6 negative surprises

RVt+1 Coeff Std. Error P-value

RVt .313 .022 0.000

RVt-5,t .287 .038 0.000

RVt-22,t .315 .035 0.000

SURPRISE(+) .120 .041 0.003SURPRISE(-) -.091 .106 0.390constant .491 .112 0.000

Bank of America (BAC) Prices sampled every 15 minutes Data from 04/09/1997 to 01/07/2009 (2923

days), 42 earnings releases (mostly BMO), 31 positive surprises, 7 negative surprises

RVt+1 Coeff Std. Error P-value

RVt .339 .022 0.000

RVt-5,t .434 .034 0.000

RVt-22,t .174 .027 0.000

SURPRISE(+) .070 .063 0.264SURPRISE(-) -.430 .034 0.000constant .320 .089 0.000

Further analysis Try Lee-Mykland test for jumps, to see if there are

intraday jumps occurring. Account for dispersion in analyst expectations. Try to find what is the norm/exception (Chevron has

the nicest results, is this the norm or exception?) If Chevron’s results are the norm, how long does this

uncertainty after a earnings surprise last? Incorporate other stock-specific news announcements

to see effect on stock price behavior (similar to Alison Keane’s research on macroeconomic news announcements)

Continuing with the effects of analysts theme, perhaps look at analyst recommendations (buy/hold) and stock behavior.