Persistency & trends: Stock price impact of interim reports

Interim and annual reports are some of the most crucial sources of information regarding companies’ performances. Interested parties such as analysts and investors assess this information and compare it with expectations. Analysts’ expectations of companies’ interim reports are of great importance when analysing the future development of share movement. Possible deviations between analysts’ expectations and actual presented results from the individual companies might change the perceptions of specific future stock prices. Furthermore business sectors have different characteristics and might respond differently to unexpected earnings news. Over- and underperformance of the presented results in relation to analysts’ expectations could create specific stock price movements over a forthcoming period depending on the nature of the report. The authors label this phenomenon as persistent trends.

Purpose: The purpose of this thesis was to establish whether persistency and trends could be observed in the future development of companies’ stock prices with regard to analysts’ expectations and the true result presented by the companies.


1 Introduction
1.1 Background
1.2 Problem discussion
1.3 Purpose
1.4 Perspective of the study
1.5 Delimitations
1.5.1 Most traded list
1.5.2 Fourth quarter vs. annual report
1.5.3 Time frame
1.5.4 Analysts’ expectations
1.5.5 Isolation
1.6 Definitions
1.7 Research approach
1.8 Literature Studies
1.9 Literature Critique
1.10 Disposition of the thesis
2 Theoretical framework
2.1 Financial Statements
2.1.1 Legislation and rules regarding financial statements
2.1.2 Components of financial statements
2.1.3 Profit and loss statement
2.1.4 Settling the companies profits
2.1.5 Interested parties
2.2 Market efficiency
2.2.1 The foundation of market efficiency
2.2.2 Forms of market efficiency
2.2.3 The Swedish stock market’s efficiency
2.2.4 Price reaction to new information
2.3 Earlier studies of earnings announcements impact on stock prices
2.4 Earlier studies regarding persistent trends
2.5 Volatility
2.6 Event study
3 Method
3.1 Quantitative approach
3.1.1 Steps in the quantitative approach
3.1.2 Generalisation
3.1.3 Replication
3.2 Secondary data
3.3 Data collection and processing
3.3.1 Time span
3.3.2 Subcategorising
3.3.3 Non response
3.3.4 Volatility
3.4 Event study
3.5 Reliability and validity
3.6 Reliability
3.7 Validity
3.7.1 Internal validity
3.7.2 External validity
4 Empirical Study
4.1 Sample
4.2 Total data for significant reports
4.2.1 Positive reports
4.2.2 Negative reports
4.3 Empirical findings by year
4.3.1 Positive reports fourth quarter 2001
4.3.2 Negative reports fourth quarter 2001
4.3.3 Positive reports fourth quarter 2002
4.3.4 Negative reports fourth quarter 2002
4.3.5 Positive reports fourth quarter 2003
4.3.6 Negative reports fourth quarter 2003
4.3.7 Positive reports fourth quarter 2004
4.3.8 Negative reports fourth quarter 2004
4.4 Business subcategories
4.4.1 Industrial positive reports
4.4.2 Industrial negative reports
4.4.3 Health Care positive reports
4.4.4 Health Care negative reports
4.4.5 Information & Technology positive reports
4.4.6 Information & Technology negative reports
4.4.7 Financial positive reports
4.4.8 Financial negative reports
4.4.9 Material positive reports
4.4.10 Material negative reports
4.5 Summarising deviations
5 Analysis
5.1 Total data for positive significant reports
5.1.1 Yearly figures for positive reports
5.2 Total data for negative significant reports
5.2.1 Yearly figures for negative reports
5.3 Summarising total data
5.4 Business Subcategories
5.4.1 First checkpoint, T1
5.4.2 Second checkpoint, T2
5.4.3 Third checkpoint, T3
5.5 Summarising business sector data
6 Conclusions
6.1 Fulfilment of the purpose
6.2 Persistent trends
6.2.1 Positive reports
6.2.2 Negative reports
6.2.3 Business sectors
6.3 Market efficiency
7 Discussion
7.1 Implications of the results
7.2 Reliability and Validity
7.2.1 Reliability
7.2.2 Validity
7.3 Methodological critique.
7.4 Continuous studies

Author: Gyllefjord, Fredrik,Lolic, Vladimir

Source: Jönköping University

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