A Study of Stock Price Behavior around Earnings Announcements

Efficient Market Hypothesis (EMH) is being researched for a long time. Different issues have been researched to investigate whether the markets exhibit the characteristics of the efficient market. One of the most important criteria being used for testing the market efficiency is to know whether the market allows opportunity for the investors to make profit. Since it is difficult to simultaneously test the market efficiency in absolute form, the EMH is tested in weak form, semistrong form and strong form. The objective of this study is to investigate whether stock prices adjust to quarterly earnings announcement information and to examine whether the EMH applies to the Indian stock market. This study focuses on the BSE-200 index based companies listed on the Bombay Stock Exchange and uses quarterly earnings announcement as an event. The Mean Adjusted model. Market adjusted modeland Market model is used to measure the abnormal returns. The stock piece behavior is examined through event study methodology. We apply student-t test, Run and Sign test for the statistical significance. The results based on quarterly earnings announcement information show that investors can earn abnormal profits.