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When Everyone Misses on the Same Side: Robust Measures of Earnings Surprises and Stock Returns

Chin-Han Chiang Wei Dai Jianqing Fan Harrison Hong Jun Tu

Statistics Theory and Methods mathscidoc:1912.43445

Economists historically measure the degree to which the market is surprised by an earnings announcement by the consensus forecast error, defined as difference between the actual earnings and the consensus forecast. The consensus might be calculated using either the mean or median of security analysts forecasts. The premise of this measure is that the consensus forecast is a good proxy for the markets expectation of earnings. Hence the consensus forecast error captures how surprised the market is when the earnings is announced. The consensus forecast error is a building block of a host of studies across finance, accounting and economics (see for a survey of event studies in Kothari (2001)). For instance, in finance and accounting, it is used in event studies of how efficiently markets react to earnings announcements. Efficient market studies when it comes to bond or currency markets and macroeconomic
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@inproceedings{chin-hanwhen,
  title={When Everyone Misses on the Same Side: Robust Measures of Earnings Surprises and Stock Returns},
  author={Chin-Han Chiang, Wei Dai, Jianqing Fan, Harrison Hong, and Jun Tu},
  url={http://archive.ymsc.tsinghua.edu.cn/pacm_paperurl/20191221114458643512005},
}
Chin-Han Chiang, Wei Dai, Jianqing Fan, Harrison Hong, and Jun Tu. When Everyone Misses on the Same Side: Robust Measures of Earnings Surprises and Stock Returns. http://archive.ymsc.tsinghua.edu.cn/pacm_paperurl/20191221114458643512005.
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