Publicly traded companies release their earnings results four times a year. Most of the releases clustered within a four week time period known as earnings season, and since the announcement is a “binary” event that can move the price of the stock, implied volatility generally increases significantly.
There is often a consensus estimate of earnings and revenue for a firm from the analysts covering the stock. Their views are shaped by their own work as well as information the company shares publicly. Our study sought to determine how, if at all, an earnings miss or beat affected the directional movement of the stock.
A study was conducted from 2010 to present. We looked at earnings announcements from the top 250 S&P stocks (5,074 occurrences). We looked at the relationship between the earnings estimate and the actual earnings, as well as the stock price reaction to the news.
A table of the consensus EPS beats versus the consensus EPS misses was displayed. The table included the percentage the stocks were up or down on both EPS beats and misses. A six-year graph representing an investor buying stock before every earnings release and selling after the earnings announcement was displayed. A graph of the percent returns from earnings plays was also displayed.
Watch this episode of “Market Measures” with Tom Sosnoff and Tony Battista for the important takeaways and the detailed study results on how an earnings miss or beat impacts the underlying.
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