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Market-Based Solutions to Vital Economic Issues


Kenan Institute 2024 Grand Challenge: Business Resilience
Market-Based Solutions to Vital Economic Issues
Dec 28, 2020

Explaining Firms’ Earnings Announcement Stock Returns Using FactSet and I/B/E/S Data Feeds


Since 2001, the number of financial statement line items forecasted by analysts and managers that I/B/E/S and FactSet capture in their data feeds has soared. Using this new data, we find that 13 item surprises—11 income statement and 2 cash flow statement analyst and management guidance surprises—reliably explain firms’ signed earnings announcement returns. No balance sheet or expense surprises are significant. The most important surprises are (i) one-quarter-ahead sales guidance surprise, (ii) analyst sales surprise, (iii) annual Street earnings guidance surprise, and (iv) analyst Street earnings surprise. We also find that the adjusted R2s of our multivariate regressions are three times higher than those of univariate Street earnings surprise regressions, and that the four most important surprises account for approximately half of this increase in explanatory power.

Note: Research papers posted on SSRN, including any findings, may differ from the final version chosen for publication in academic journals. 

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