stock repurchase announcements: a test of market ... - Asbbs.org

Dhareshwar and Bacon
AER
0
-0.02
-0.03
-0.04
-0.05
AER v/s Time
-30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30
-0.01
CHART 4: Bad News Stocks : CAER over event period
CAER
-1
-1.5
-2
CAER v/s Time
0
-30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30
-0.5
The graphs in Charts 1 and 2 demonstrate that the “good news” announcements of
quarterly earnings had a significant positive impact on the firms’ share price on announcement
day 0 and up to at least 30 days after announcement day 0. As for the bad news category of firms,
the announcement of quarterly earnings had a significant negative impact on the firms’ share
price upto atleast 30 days after the earnings announcement day 0. Thus the post earnings
announcement drift phenomenon is evident in this sample of firms.The evidence supports the
alternate hypothesis H11: The risk adjusted return of the stock price of the sample of firms
announcing quarterly earnings is significantly affected by this type of information on the
announcement date when made public. This is consistent with the weak form market efficiency
hypothesis which states that the stock price reflects all past information. For the sample of firms
analyzed, an investor maybe able to earn an above normal risk adjusted return by acting on the
public announcement of quarterly earnings using price momentum strategies. As for the no news
category of firms, no significant impact is observed on or around the quarterly earnings
announcement day 0 as seen in the graph of CAER for the No News category in chart 6 below.
ASBBS E-Journal, Volume 4, No.1, 2008 29
time
CHART 5: No News Stocks : AER over Event period
time