A Study of FTSE100 Companies’ Share Price Reactions to Earnings Announcements (2008)
Share Price Reactions to Earnings Announcements Dissertation – Over the years, market efficient hypothesis has been one of the most popular areas under investigation, in the financial world. This is not unusual if we consider the fact that various studies in that particular area have raised a controversy whether markets react efficiently to the arrival of new information. This study is concentrated on the arrival of new information in the market regarding only positive quarterly earnings announcements from companies listed in London’s Stock Exchange FTSE100 Index.
The data in the study have been collected from websites such as the London’s Stock Exchange website and Yahoo Finance in a period of one year, from 1/1/2007 to 21/12/2007 and it was concerning companies that made positive quarterly earnings announcements during this period of study. The employment of events study methodology and the market-adjusted return model, helped the author to explore the impact of such events has and how share prices react to such information.
The author identified the fact that after the publication of the positive quarterly earnings announcements there is indication of the market reacting efficiently. However, strong evidence has been found that shares reaction and average abnormal returns are rising significantly high one day before the publication of the announcement. In addition, it was identified that market anomalies such as overreaction and under-reaction exist.
Particularly, Overreaction was found on days seven and eight after the event and under-reaction on day three. The author assuming the fact that the study was based only on companies listed on FTSE100 index, which are the largest companies in the UK, finds it extraordinary the evidence found on day -1 where significantly high share returns where found. This paradox could be caused from inside trading or to other information available to the market at that day, affecting positively the share prices. Extending this study with a larger sample under investigation in a bigger period of time can be a valuable tool for making more safer conclusions.
The academic area under investigation provided in this study by the author is the Efficient Market Hypothesis (EMH). The challenging environment built through various academic prospects in this broad area tempted the author to investigate through a limited time frame observational study the validation of EMH in the London Stock Exchange FTSE 100 index of companies quarterly positive earnings announcements and to whether share prices conform with EMH examining also indications of any anomalies (over/under-reaction). Through the study, previous implications made by various academics as to the theoretical background of the area, have been considered and interpreted.
Findings from previous studies were examined and compared with the findings of this study as an attempt to make more solid the evidence provided through the analysis in conjunction with the theoretical background of the area.
- 10,000 words – 96 pages in length
- Good use of literature
- Excellent analysis of subject area – AAR/CAAR
- Expertly written throughout
- Ideal for finance and accounting students
1: Introduction
Aims
Theoretical basis
Structure of Study
2: Literature Review
The Random Walk Theory
Efficient Market Hypothesis
Weak Form Efficient Market Hypothesis
Semi-Strong Form Efficient Market Hypothesis
Strong Form Efficient Market Hypothesis
Conflicting Literature on EMH
Stock Anomalies
Behavioural Finance
Event Studies
3: Methodology
Philosophical Basis
General Objectives
Deductive Research-Testing Theory
Structured Observation
Quantitative Research
Secondary data
The Data Sample
Event Study and Procedures
Hypothesis
Limitations of Study
4: Analysis of Findings
First stage of Analysis
Second Stage of Analysis-Further Investigation
Overreaction and Under-reaction Analysis
Summary
5: Conclusion
Theoretical background
Methodology and Findings of Analysis
Further Study
References
Bibliography
Appendix Section
