Afego, Pyemo (2011): Stock Price Response to Earnings Announcements: Evidence from the Nigerian Stock Market.
Download (200kB) | Preview
This paper examines the stock market reaction to annual earnings information releases using data on the Nigerian Stock Exchange. Using the event study method, the speed of reaction of the market to annual earnings information releases for a sample of 16 firms listed on the exchange is tested. Significant abnormal price reactions around earnings announcements suggest the earnings announcements contain value-relevant information. We find that the magnitude of the cumulative abnormal returns is dominated by significant reactions 20 days before the earnings release date which suggests that a portion of the market reaction may be due to private acquisition and, possibly, abuse of information by insiders. The persistent downward drift of the cumulative abnormal returns, 20 days after the announcement, is inconsistent with the efficient markets hypothesis, and therefore suggests that the Nigerian stock market does not efficiently adjust to earnings information for the sample firms within the study period.
|Item Type:||MPRA Paper|
|Original Title:||Stock Price Response to Earnings Announcements: Evidence from the Nigerian Stock Market|
|Keywords:||earnings announcements; abnormal returns; event studies; emerging markets; Nigeria|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies
G - Financial Economics > G1 - General Financial Markets > G10 - General
|Depositing User:||Pyemo Afego|
|Date Deposited:||07. Oct 2011 16:56|
|Last Modified:||12. Feb 2013 10:06|
Adelegan, O.J. (2003), “Capital Market Efficiency and the Effects of Dividend Announcement on Share Prices in Nigeria” African Development Review, Vol. 15 Nos. 2&3 pp: 218–236.
Adelegan, O. J. (2004), “How efficient is the Nigerian Stock Market: Further evidence” African Review of Finance and Banking, pp: 145-165.
Adelegan, O.J. (2009), “Price Reactions to Dividend Announcements on the Nigerian Stock Markets” AERC Research Paper 188, Nairobi: African Economic Research Consortium
Alford, A., Jones, J., Leftwish, R. and Zmijewski, M. (1993), “The relative informativeness of accounting disclosures in different countries” Journal of Accounting Research Vol.31 pp: 183—223
Aloui, C., (2005), “Long-range dependence in daily volatility on Tunisian stock market” Economic Research Forum Working Paper 40, 3–25
Avramov, D., Chordia, T. and Goyal, A. (2006), “Liquidity and autocorrelations in individual stock returns”, Journal of Finance, Vol. 61 pp: 2365–2394.
Ball, R.J. and Brown, P. (1968), “An empirical evaluation of accounting income numbers”, Journal of Accounting Research Vol. 6 pp: 159-178
Ball, R. and Kothari, S. (1991), “Security Returns Around Earnings Announcements” The Accounting Review Vol. 66 pp: 718-738.
Beaver, H.W (1968), “The Information Content of Annual Earnings Announcements” Journal of Accounting Research, Vol. 6 pp: 67-92
Chambers, A.E. and Penman S.H. (1984), “Timeliness of reporting and the stock price reaction to earnings announcements” Journal of Accounting Research: pp.21–47.
Chordia, T. and Shivakumar, L. (2005), “Earnings and price momentum”, Journal of Financial Economics, 80, pp: 627-656
Chordia, T., Goyal, A., Sadka, G., Sadka, R. and Shivakumar, L. (2009), “Liquidity and post earnings announcement drift” Financial Analyst Journal Vol. 65 No. 4 pp: 18-33
Cready, W. M. and Gurun, U. G. (2010), “Aggregate Market Reaction to Earnings Announcements” Journal of Accounting Research Forthcoming: Available at SSRN: http://ssrn.com/abstract=1536894
Ederington, L. H. and Lee, J. H. (1995), “The short-run dynamics of the price adjustment to new information” Journal of Financial and Quantitative Analysis Vol. 30 pp: 117–134
Elsharkawy, A. and Garrod, N. (1996), “The impact of investor sophistication on price responses to earnings news” Journal of Business Finance & Accounting Vol. 23 No. 2 pp: 221—236
Fama, E., Fisher, L., Jensen, M. and Roll, R. (1969), “The Adjustment of Stock Prices to New Information”, International Economic Review Vol. 10 pp: 1-21.
Fama, E. (1970), “Efficient Capital Markets: A Review of Theory and Empirical Work” The Journal of Finance, Vol. 25, No. 2, pp. 383-417
Fifield, S.G.M., Power, D.M., and Sinclair, C .D. (2002), “Macroeconomic Factors and Share Returns: An Analysis Using Emerging Market Data” International Journal of Finance and Economics Vol. 7 pp: 51-62
Firth, M. (1981), “The relative information content of the release of financial results data by firms” Journal of Accounting Research Vol. 19 No. 2 pp: 521-529
Fleming, M., and Remolona, E. (1999), “Price formation and liquidity in the U.S. Treasury market: The response to public information” Journal of Finance Vol. 54 pp: 1901–1927.
Greene, J.T and Watts, S.G (1996), “Price Discovery on the NYSE and the NASDAQ: The Case of Overnight and Daytime News Releases” Financial Management Vol. 25 pp: 19-42
Gutierrez, R. C. and Kelley, E. K. (2006), “Evidence to the contrary: weekly returns have momentum” Working Paper (University of Oregon, 2006).
Harvey, C.R., (1995), “Predictable Risk and Returns in Emerging Markets”, Review of Financial Studies, Vol. 8 No. 3 pp: 773-816
Hirota, S., Sunder, S., (2002), “Stock Market as a ’beauty contest’: Investor Beliefs and Price Bubbles sans Dividend Anchors”. Waseda: Institute of Finance Working Paper 03-004, 1–62.
Hirshleifer, D. (2001), “Investor Psychology and Asset Pricing” Journal of Finance Vol. 56 pp: 1533-1597
Kausar, A. and Taffler, R. (2006), “Testing behavioural finance models of market under- and overreaction: Do they really work?” Working Paper (University of Edinburgh, 2006)
La Porta, R., Lopez-de-Silanes, F., and Shleifer, A. (2003), “What Works in Securities Laws?” NBER Working Paper No. 9882, Boston: National Bureau of Economic Research
MacKinlay,A. C. (1997), “Event studies in economics and finance”, Journal of Economic Literature, vol. 35, pp: 13-39.
Ng J., Rusticus, T. and Verdi, R. (2008), “Implications of transaction costs for the post-earnings announcement drift” Journal of Accounting Research Vol. 46 No. 3 pp: 661-696.
Okpara C. G. (2010), “Analysis of weak-form efficiency on the Nigerian stock market: Further evidence from GARCH model” International Journal of Applied Economics and Finance Vol. 4 pp: 62-66.
Olowe, R.A. (1998), “Stock Splits and the Efficiency of the Nigerian Stock Market”, African Review of Money, Finance and Banking, Vol.1–2, pp: 97–125.
Oludoyi, S.B. (1999), ‘Capital Market Efficiency and the Effects of Earnings Announcements on Share Prices in Nigeria’ unpublished PhD thesis, University of Ibadan, Nigeria.
Osei, K. A. (2002), “Asset Pricing and Informational Efficiency of the Ghana Stock Market” AERC Research Paper 115, Nairobi Kenya: African Economic Research Consortium.
Pope, P. and Inyangete, C. G. (1992), “Differential information, the variability of UK stock returns, and earnings announcements” Journal of Business Finance & Accounting Vol. 19 No. 4 pp: 603—23.
Sponholtz, C. (2005), “The information content of earnings announcements in Denmark”, EAA Conference, Prague 2005: European Accounting Association Conference
Su, D. (2003), “Stock Price Reactions to Earnings Announcements: Evidence from Chinese Markets”, Review of Financial Economics Vol. 12 pp: 271-286
Subrahmanyam, A. (2007), “Behavioural Finance: A Review and Synthesis”, European Financial Management, Vol. 14 No. 1 pp: 12–29
Yartey C. and Adjasi, C.K (2007), “Stock Market Development in Sub-Saharan Africa: Critical Issues and Challenges, IMF Working Paper WP/07/209, Washington: International Monetary Fund.