Are Earnings- and Revenue Response Coefficients Time Varying? Evidence from the S&P 500

Sammanfattning: We test the time variance of the market's reaction to earnings- and revenue surprises, i.e. the earnings- and revenue response coefficients, on S&P 500 constituents during the period 2001 - 2017, split into three different subperiods based on US GDP growth rates. We find that the earnings response coefficient is time varying, and lower during the 2010 - 2017 period than in the ones before. We do not find that the revenue response coefficient is time varying, and the evidence on the relationship between market returns and revenue surprises during the 2008 - 2009 period is inconclusive. Furthermore, we find that the studied accounting figures, primarily earnings, better explain abnormal stock returns surrounding financial announcements during the 2008 - 2009 period of economic contraction than during the 2001 - 2007 and 2010 - 2017 periods of economic expansion. Finally, the model's ability to explain abnormal returns is lower for the 2010 - 2017 period than for the ones before, which may signify that the market has shifted its focus to financial or non-financial factors not included in this study.