Impact of Earnings Announcement on Stock Returns and Information Effect on Investor’s Sentiments: Evidence from Pakistani Stock Market

Abstract

The purpose of this study to empirically investigating the impact of earnings announcement on stock returns and investor’s deportment via signalling effect for the period 2010-2014 by the Pakistani firm’s listed on Karachi Stock Exchange (KSE). The study employed event study methodology to examine the effect of earnings announcement on the stock returns around the 41-days event window of both pre and post announcement. The research results reveal that after the earnings announcement, stock returns persistent downward drift which is statistically insignificant and offer some support for behavioral finance theory which confirmed that earnings announcement not provide any predicative information around the firm’s future earnings performance. The study have implications for investors, policy makers and shareholders for their proper strategic decision making to uncovered the uncertainty about the firm’s future earnings performance.

Keywords: Earnings Announcement; Stock Returns; Signalling Effects; Event Study.

JEL Classification: G14; G17; G32;