Business, Management and Accounting
4 years ago

Investors Beware: Zero Earnings Surprises Raise Red Flags in Stock Market!

Journal of Accounting Research
Does the Stock Market See a Zero or Small Positive Earnings Surprise as a Red Flag?
Edmund C. Keung, Zhi-Xing Lin, Michael S. H. Shih

Paper Summary

Firms spend money to meet earnings forecasts. Stock market reacts differently to small earnings surprises. Investors are cautious about earnings surprises of 0 to 1 cent. Future earnings surprises are less positive when current earnings surprises are in that range. Analysts also respond negatively to earnings surprises in that range.

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