Stock Market Overreaction to Management Earnings Forecasts

Jean-Sébastien Michel

Cahiers de recherche from CIRPEE

Abstract: I hypothesize that the stock market overreacts to management earnings forecasts. I find that negative management forecast surprises lead to a -5.9% abnormal return around the forecast and a 1.9% correction in the 2-month period after earnings are announced. Positive surprises work in the opposite direction, with a 1.9% abnormal return and a -1.7% correction. The level of the stock market overreaction varies depending on forecast and firm characteristics, but the marginal impact remains the same: a 1% change in the stock market reaction around the forecast is associated with a 0.4% correction. These findings are consistent with the idea that investors overweight their recent experience in situation of increased uncertainty, leading to stock market overreaction.

Keywords: Overreaction; information uncertainty; market efficiency; management forecasts; analyst forecasts (search for similar items in EconPapers)
JEL-codes: G02 G12 G14 G24 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-for
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Persistent link: https://EconPapers.repec.org/RePEc:lvl:lacicr:1319

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