FINANCIAL MARKET REACTIONS TO EARNINGS ANNOUNCEMENTS AND EARNINGS FORECAST REVISIONS: EVIDENCE FROM THE U.S. AND CHINA

This paper examines the impact of earnings announcements and earnings forecast revisions on stock returns across markets with different levels of maturity. In each market, the objects of interest are the effects of backward-looking earnings announcement information and forward-looking earnings forecast information on the price of equity shares. We analyze financial markets in both the U.S. and China in order to see how the level of market maturity and differences in information availability and actual or perceived reliability affect this relationship. We find that forward-looking analyst forecast information plays a significantly larger role in the security pricing process in the more mature U.S. financial market. In the less mature Chinese financial market, we find the opposite relationship as backward-looking earnings announcement information plays a larger role.