Jumps and earnings announcement: Empirical evidence from an emerging market using high frequency data

Abstract

This chapter aims to measure the company-level informational shocks based on the jump dynamics of stock price around earnings announcement in emerging economy using high frequency data. Besides, it intends to show the profitability of earnings announcement strategy that uses jumps as trading signal. For this, the chapter divides earnings announcements as “Good” and “Bad” news and tests how jump behavior changes in accordance to “Good” or “Bad” earnings news. In another words, the chapter tests the presence of the post earnings announcement drift anomaly in Turkish Stock Market through characterizing the jumps and cumulative abnormal returns of individual stocks around the announcement days. The results show that there is a discrete jump in the stock price around both “Good” and “Bad” earnings announcement in emerging economy. The cumulative abnormal returns response significantly to “Bad” earnings news for the event window which support the validation of post earnings announcement drift anomaly in Turkish Stock Market. It can be conclude that investor can take short position in Bad earnings news to make a profit.