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Event Study: The Rising Impact Of Earnings On Stock Returns

A study published in 2015 by two Stanford professors documented the rising impact that earnings announcements have on stock prices. The study encompassed every firm on the three major exchanges from 1971 to 2011 and analyzed returns following an earnings call. They found that earnings reports have a large impact on investor decisions and that impact has been rising at a growing rate since 2001.

"When they applied this approach to their sample of 700,000 quarterly earnings reports from 1971 through 2011, they found that price revisions were much larger in the days surrounding an announcement than at other times." This also meant that stock price volatility during announcement periods were much higher than non-announcement periods and that gap was growing.

The study states, "We find the variability of returns at earnings announcements has continued to rise, and that the rate of the increase is substantially greater than in earlier years."

The goal for this notebook was to expand upon the findings and see if the same trend upheld from 2011 - 2015 (the study stopped at 2011).

Summary

Are the results here similar to what you've seen in your backtesting? Comment below with your thoughts or feel free to shoot me a mail at [email protected].

For an in-depth webinar on earnings announcements. Watch our webinar with Dr. Jess Stauth, Quantopian's VP of Quant Strategy, and Anju Marempudi, CEO of EventVestor.

For questions on accessing this data, please email [email protected]

Thanks and feedback is always appreciated.

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2 responses

The notebook has been updated to use the dates available in the sample version (up till the beginning of 2014).

A few folks have been asking for an updated version of this study.

Here's the results of the notebook run till 2015 using the full, premium version of the Earnings Calendar. The full version is available for $5/mo.

In 2014 and 2015, volatility around earnings and average volatility seem to have risen.

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