Stock Price Reaction to Quarterly Earnings Announcements with respect of outlook changes and deviation to consensus forecast

Table of Contents

• Introduction
• Problem Definition and Objectives
• Course of the Investigation
• Theoretical Foundations
• What Determines a Stock Price?
• Prime Standard
• Ad Hoc Publicity
• Market Efficiency
• Anomalies and Abnormal Performance
• Theoretical Discussion on Stock Price Behaviour after Earnings Announcements
• Behavioural Finance
• Investment Strategies and Models
• Bad-model Problems
• Practical Examination on Stock Price Behaviour after Earnings Announcements
• Data
• Benchmarks
• Sector Indexes as Benchmark
• Consensus Expectations and Company Outlook as Benchmarks
• Classification of Portfolios
• Results of Examination
• Differentiation between Quarters
• Differentiation between Performance Prior the Earnings Announcement
• Outliers
• Conclusion

Objectives and Key Themes

This paper focuses on the short-term stock price reactions of companies listed in the Deutscher Aktienindex (DAX) and Midcap DAX (MDAX) around the time of quarterly earnings announcements. It aims to analyze how changes in full-year outlook and earnings surprise, compared to analyst consensus forecasts, impact stock prices within ten days before and after the announcement date.

• Short-term stock price reactions to quarterly earnings announcements
• Impact of changes in full-year outlook on stock prices
• Influence of earnings surprise relative to analyst consensus forecasts on stock prices
• Relevance of the findings for hedge funds and investors utilizing short-term strategies
• Analysis of short-term price performance, contrasting with long-term studies

Chapter Summaries

The introduction defines the research problem and objectives. It highlights the importance of earnings announcements for investors, particularly focusing on the need for analysis beyond long-term scenarios. The paper specifically targets short-term stock price reactions, focusing on hedge funds and investors with short-term strategies.

Chapter 2 lays out the theoretical foundations of the study. This includes a discussion of factors influencing stock prices, the "Prime Standard" framework for stock market regulations, the concept of "ad hoc publicity," market efficiency, and the role of market anomalies and abnormal performance in stock price movements.

Chapter 3 delves into theoretical discussions on stock price behavior after earnings announcements. This section examines the role of behavioral finance, analyzes different investment strategies and models, and explores the concept of "bad-model problems," which can affect stock price predictions.

Chapter 4 focuses on the practical examination of stock price behavior after earnings announcements. It outlines the data used, the benchmarks employed, and the classification of portfolios. This chapter also presents the results of the analysis, examining how stock prices react in different quarters and how previous performance affects subsequent reactions to earnings announcements.

Keywords

This study focuses on stock price reaction to quarterly earnings announcements, specifically examining the impact of outlook changes and deviation from consensus forecasts on short-term price performance. Key areas of focus include the Deutscher Aktienindex (DAX), Midcap DAX (MDAX), hedge funds, short-term investment strategies, event study methodology, earnings surprise, and the role of qualitative information in earnings announcements.