Leonard N. Stern Graduate School of Business, New York University. I want to thank Ray Ball, Victor Bernard, John Bildersee, Stephen Brown, Colin Camerer, Martin Gruber, Cole Kendall, Gary King, April Klein, S. P. Kothari, Josef Lakonishok, Joshua Livnat, Mike Long, Wayne Mikkelson, Paul Schultz, Keith Weigelt, an anonymous reviewer, and the co-editor, David Mayers, for their helpful comments. The financial support of the Peat Marwick Foundation is gratefully acknowledged. All errors remain my responsibility.
Does the Stock Market Overreact to Corporate Earnings Information?
Article first published online: 30 APR 2012
1989 The American Finance Association
The Journal of Finance
Volume 44, Issue 5, pages 1385–1399, December 1989
How to Cite
ZAROWIN, P. (1989), Does the Stock Market Overreact to Corporate Earnings Information?. The Journal of Finance, 44: 1385–1399. doi: 10.1111/j.1540-6261.1989.tb02660.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
This paper tests whether the stock market overreacts to extreme earnings, by examining firms' stock returns over the 36 months subsequent to extreme earnings years. While the poorest earners do outperform the best earners, the poorest earners are also significantly smaller than the best earners. When poor earners are matched with good earners of equal size, there is little evidence of differential performance. This suggests that size, and not investor overreaction to earnings, is responsible for the “overreaction” phenomenon, the tendency for prior period losers to outperform prior period winners in the subsequent period.