Quarterly Earnings Releases, Expectations, and Price Behavior Sam Lim

Set-up Purpose: to explore the relationship between analyst expectations, quarterly earnings releases, and stock price behavior. Analyst earnings estimates and actual earnings obtained from Wharton’s WRDS, from the I/B/E/S database. Release time of quarterly earnings announcement (BMO or AMC) obtained from Earnings.com

Set-up (continued) HAR-RV Model Earnings surprise factor (percentage) RV is annualized Earnings surprise factor (percentage) ( EPSactual - EPSestimate ) / EPSactual * 100 Run HAR-RV adding the surprise factor as a regressor. On days of quarterly earnings announcements (the day after, if announcements are made AMC), SURPRISE = surprise factor. Otherwise, SURPRISE = 0.

Chevron (CVX) Prices sampled every 10 minutes Data from 10/10/2001 to 01/07/2009 (1804 days), 26 quarterly earnings releases (BMO) RVt+1 Coeff Std. Error P-value RVt .278 .029 0.000 RVt-5,t .584 .044 RVt-22,t .073 .034 0.033 SURPRISE -.044 .023 0.062 constant .349 .094

Chevron (CVX) Split-sign regression – Are the effects of negative surprises different from positive surprises? CVX – 12 positive surprises, 13 negative surprises RVt+1 Coeff Std. Error P-value RVt .277 .029 0.000 RVt-5,t .583 .044 RVt-22,t .075 .034 0.029 SURPRISE(+) .010 .038 0.787 SURPRISE(-) -.077 .030 0.010 constant .338 .094

Amazon (AMZN) Prices sampled every 5 minutes Data from 08/01/1997 to 01/07/2009 (2846 days), 42 earnings releases (AMC), 14 positive surprises, 23 negative surprises Surprise days not properly lagged RVt+1 Coeff Std. Error P-value RVt .301 .022 0.000 RVt-5,t .302 .038 RVt-22,t .337 .035 SURPRISE(+) .024 0.294 SURPRISE(-) -.010 .018 0.601 constant .749 .218

Amazon (AMZN) Surprise days lagged one day to account for AMC announcements RVt+1 Coeff Std. Error P-value RVt .300 .022 0.000 RVt-5,t .302 .038 RVt-22,t .337 .034 SURPRISE(+) .027 0.238 SURPRISE(-) -.046 .018 0.012 constant .749 .218 0.001

Pepsi (PEP) Prices sampled every 5 minutes Data from 04/09/1997 to 01/07/2009 (2925 days), 66 earnings releases (BMO), 24 positive surprises, 8 negative surprises RVt+1 Coeff Std. Error P-value RVt .313 .022 0.000 RVt-5,t .287 .038 RVt-22,t .315 .035 SURPRISE(+) .120 .041 0.003 SURPRISE(-) -.091 .106 0.390 constant .491 .112

Chevron (CVX) Overnight returns ln(price at market open) – ln(price at market close from previous day) ONReturn Coeff Std. Error P-value SURPRISE(+) .00019 .00016 0.247 SURPRISE(-) .00050 .00015 0.001 constant .00031 .00021 0.140

Chevron (CVX) Intraday Returns Sum of returns within the day Increase in volatility not from everyone selling after negative surprises… Return Coeff Std. Error P-value SURPRISE(+) .00030 .00027 0.261 SURPRISE(-) .00017 .00024 0.473 constant .00031 .00021 0.783

Chevron (CVX) BNS Jump Test (Quad Power, Ratio-max adjusted) Percentage of Jump days No big difference – lagging has no real results either volatility increase not from jumps Though there could be intraday jumps… BNS Z-Score .1% 1% 5% All days 1.94 5.88 14.36 Earnings Rel. days 3.85 15.38 Not ER days 1.91 5.74 14.23

Amazon (AMZN) Overnight Returns Intraday Returns Sign-split regression oddities? ONReturn Coeff Std. Error P-value SURPRISE(+) .00062 .00027 0.000 SURPRISE(-) .00026 .00024 0.007 constant .00000 .00052 0.994 Return Coeff Std. Error P-value SURPRISE(+) .00027 .00016 0.096 SURPRISE(-) -.00004 .00013 0.762 constant .00071 .00072 0.319

Pepsi (PEP) Similar results as Amazon regressions. Regressing overnight returns with surprise – statistically significant, positive relationship (p-value is nearly 0) Regressing intraday returns with surprise – statistically insignificant, slightly negative relationship(p-value .15) However, split-sign regression yields positive relationship significant at 10% level, but only for positive surprises (not stat. sig. for negative surprises)

Pfizer (PFE) Prices sampled every 5 minutes Data from 04/09/1997 to 01/07/2009 (2923 days), 43 earnings releases (BMO), 31 positive surprises, 6 negative surprises RVt+1 Coeff Std. Error P-value RVt .313 .022 0.000 RVt-5,t .287 .038 RVt-22,t .315 .035 SURPRISE(+) .120 .041 0.003 SURPRISE(-) -.091 .106 0.390 constant .491 .112

Bank of America (BAC) Prices sampled every 15 minutes Data from 04/09/1997 to 01/07/2009 (2923 days), 42 earnings releases (mostly BMO), 31 positive surprises, 7 negative surprises RVt+1 Coeff Std. Error P-value RVt .339 .022 0.000 RVt-5,t .434 .034 RVt-22,t .174 .027 SURPRISE(+) .070 .063 0.264 SURPRISE(-) -.430 constant .320 .089

Further analysis Try Lee-Mykland test for jumps, to see if there are intraday jumps occurring. Account for dispersion in analyst expectations. Try to find what is the norm/exception (Chevron has the nicest results, is this the norm or exception?) If Chevron’s results are the norm, how long does this uncertainty after a earnings surprise last? Incorporate other stock-specific news announcements to see effect on stock price behavior (similar to Alison Keane’s research on macroeconomic news announcements) Continuing with the effects of analysts theme, perhaps look at analyst recommendations (buy/hold) and stock behavior.