A master thesis from Aalborg University
Impact of Forecast Dispersion as a Measure of Information Asymmetry on Stock Volatility Post-Earnings Announcements: An Empirical Study Over Three Years on 75 S&P 500 Stocks
[Impact of Forecast Dispersion as a Measure of Information Asymmetry on Stock Volatility Post-Earnings Announcements]
Author(s)
Term
4. term
Publication year
2024
Submitted on
2024-05-30
Pages
58 pages
Abstract
This study tries to analyze the influence of information asymmetry on stock volatility around earnings announcements. There is a great amount of literature on the longer effects of earnings reports and how the market response slowly or quickly to the information. This kind of literature is generally categorized as Post-Earnings Announcement Drift (PEAD). But the study of the immediate effect of earnings reports is not seen commonly in financial literature and research. Given the small amount of research in this area, this study tries to fil the gap on this missing literature. This research tries to use historical prices of 75 S&P 500 stocks over the last three years and all their 900 earnings announcements and calculate it as idiosyncratic abnormal volatility, this abnormal volatility will be used against information asymmetry which is measured through analyst forecast dispersion. The use of forecast dispersion as a measure of information asymmetry is due to limited access to other data observation that are normally used, like bid-ask spread, volatility spreads in option trading, insider trading information etc. This study will use Ordinary Least Squares (OLS) regression to analyze the relationship between information asymmetry and abnormal stock volatility during a 20-day window around earnings announcement. The study also tries to analyze the immediate effect post earnings on day 0 and1. The findings of this study are made to improve the understanding of how the differences in information availability for analysts and investors have an impact on stock price reactions and could give insights that would help short-term trading strategies. This study not only helps the investors trading strategies but offers an extension to the literature of Post-Earnings Announcement Drift (PEAD).
Documents
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