How markets react to earnings announcements in the absence of analysts and institutions: evidence from the Saudi market

How stock markets react to news is an established area of research. We examine the behaviour of the Saudi Stock Market (SSM) in response to quarterly earnings announcements where there are no analysts' forecasts, with the aim of examining the efficiency of the market. The SSM seems to underreact to positive news for the first five days and then reactions tend to strengthen in the following weeks, indicating the presence of a Post-Earnings Announcement Drift (PEAD). At the same time, the SSM overreacts to negative news in the first five days and then reverses its direction and reports an upward PEAD. The individually dominated market combined with the absence of analysts' forecasts is the main explanation for this underreaction to positive news and overreaction to negative news.