From Market Efficiency to Event Study Methodology : An Event Study of Earnings Surprises on Nasdaq OMX Stockholm

Sammanfattning: The analysis of market efficiency helps researchers and investors to better understand the complexities of the financial market. This report tests market efficiency at the semi-strong degree by employing an event study with focus on surprises in quarterly earnings-announcements made by companies that are publicly listed on Nasdaq OMX Stockholm. The surprises are determined by comparing the earnings per share with its consensus estimate, for two positive and one negative panel respectively. The report also provides a robust methodology description of event studies in general, likewise a broad discussion about different types of biases that might occur. For determining estimated abnormal returns the market model is adopted, as most commonly done in event studies. The panels are statistically evaluated by the use of a non-parametric rank test and economically through cumulated abnormality. The authors statistically find semi-strong market inefficiency through the negative panel, as well as for the small positive panel when economical inferences are taken into account, where a slight post announcement abnormal return can be achieved. The same could not be implied for the large positive panel.