Market interpretation of reported currency effects on revenue in quarterly financial statements: reporting opaqueness, investor attention and market efficiency implications

Sammanfattning: Seminar date: 2021-06-03 Course: BUSN79 - Degree Project in Accounting and Finance Authors: Tobias Scheufele and Sebastian Hofstedt Supervisor: Håkan Jankensgård Examiner: Marco Bianco Key words: currency effects on revenue, investor attention, market efficiency, portfolio strategies, alpha Purpose: investigate the relationship between reported currency growth on revenue and subsequent stock prices following quarterly reports. Design a portfolio strategy to exploiting potential corrections of initial overreactions by market participants. Methodology: deductive approach using panel regression models on both the entire sample and constructed portfolios based on screening criteria. The main model used for sample and portfolio regressions have been the Fama-French three factor model to evaluate performance of the portfolios. Theoretical perspectives: main theoretical frameworks include investor attention and distraction theories, efficient market hypothesis, and the intrinsic value of a firm framework. Empirical foundation: the final sample consists of 169 firms from five large cap Northern European indices, namely: Sweden, Denmark, Norway, Finland, and Germany. High sample attrition related to lack of currency effects reporting and inconsistent reporting. Conclusions: no exploitable relationship has been found and only a few portfolios generate statistically significant positive overperformance. The reason is concluded to be related to lacking investor attention and hence limited interpretation due to the high opaqueness of the reporting of currency effects.