New earnings reports often elicit immediate reactions from the market. These, sometimes large, price swings are often associated with announcements that defy expectations. Less obvious is the longer-term impacts on a firms’ trading regime. In 2019, Chordia and Miao argued that these immediate reactions are important in reducing price drift and improving trading efficiency in the long term.
Using Bloomberg’s new real-time Corporate Earnings data feed, we analyzed 7,381 earnings reports posted between October and December 2023 across 6,510 of the most liquidly-traded global companies to see what impact earnings announcements have had on stock prices in recent months.
New corporate earnings data feed
Bloomberg’s real-time Corporate Earnings data feed delivers results and guidance for market-moving key performance indicators (KPIs) , as reported by companies via press releases, web releases and news embargoes. Automated extraction targets sub-second schematized delivery of company-specific KPIs, allowing for market event analysis over different time scales. Additionally, Bloomberg analyst oversight ensures the accuracy of these data releases.
Seconds: Markets respond instantaneously to earnings releases
Stock prices tend to face significant volatility the first few seconds after an earnings release. The biggest challenge in trading this regime – while either seeking or providing short-term liquidity – is timely access to accurate data. Trades need to be executed almost instantaneously to capture the short-term price action. The figure below drills into a noteworthy example of this dynamic using Bloomberg’s real-time Corporate Earnings data feed.
Figure 1 shows Apple’s after-market share ticks during the company’s earnings release in November 2023. Prices jumped by 2.5% to as high as $182 in a 30 second window between 16:30:00 and 16:30:30. Most of this rise occurred around 16:30:02, in-step with a spike in volume (represented by the line at the bottom). While the market generally reacted positively to Apple’s earnings announcement, there was concern around the company missing estimates for China.
Timeliness – coupled with accuracy – is the most important asset at sub-second timescales. As the examples show, the ability to enter into trades ahead-of or in-step with the earnings report allows market participants to anticipate and react to subsequent price action.
Days: Price movement directionality
Notably, earnings releases don’t always lead to definitive price moves in a specific direction. We see this in figure 1, as Apple’s stock price falls back down to pre-announcement levels post release. This volatility is likely a result of different market participants, operating on different timescales, attempting to rationalize the meaning and impact of the earnings release on the company in question. A release that might be great for the firm in the long-term can have negative short-term implications, for example.
Figure 6 explores the relationship between the release of an earnings report and longer term price action. Stock prices were normalized by dividing by the price of the stock on earning release day (day 0). Thus all groups have a price of one on day zero. The universe of stocks is split into six roughly equal sized groups based on the extent of their ‘earnings surprise’ on the release of the report. As shown, groups with higher surprises on earnings release day tended to see higher prices in the subsequent 30 days.
The impact of earnings releases on a firm’s trading regime can last from microseconds to tens of days. Investors can realize both of these benefits through the new real-time earnings product from Bloomberg.
Bloomberg
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