151st Seminar

Topic:Comparing with the Average:Reference Points and Market Reactions to  Above-Average Earnings Surprises

  

Presenter:Wen He, associate professor, Queensland University, Australia     

                

Time:March 10, 2017(Friday) 1000 - 11:30


Venue:Room 205, Jiageng Bld 2


Abstract:We investigate a new reference point in financial markets.  Specifically, we examine investors’ use of the average earnings surprise as a  reference point to classify earnings news into good or bad news. We find that in  the short window around earnings announcements, the market rewards a price  premium to firms with above-average earnings surprises. The price premium is  larger when investors are more likely to be subject to cognitive constraints in  processing information. We also find that firms announcing above-average  earnings surprises exhibit a greater abnormal trading volume, consistent with  the notion that beating reference points prompts investors to  trade.