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Questions about Earnings Announcement a). When examining return reactions to earnings announcements we focused on the earnings surprise. Describe one way to define the earnings

Questions about Earnings Announcement

a). When examining return reactions to earnings announcements we focused on the earnings surprise. Describe one way to define the earnings surprise.

b). Briefly describe an example of a returns pattern related to earnings announcements consistent with the market reacting too conservatively (underreacting) to information in the earnings surprise.

c). Briefly describe an example of a returns pattern related to earnings announcements consistent with the market overreacting to information in the earnings surprise.

d). Briefly describe an example of a returns pattern related to earnings that we discussed in class where the market ignores information released before the earnings announcement but is subsequently predictably surprised when earnings are announced.

e). In addition to reacting to earnings surprise, stock prices also rise on average around earnings announcement dates, which is documented as earnings announcement premium in the literature. What can be the possible reason(s) for this phenomenon?

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