Do Swedish companies that exceed analyst earnings expectations experience abnormal stock returns beyond the initial effect on the announcement day?

Abstract

This thesis aims to investigate whether Swedish companies that exceed analyst earnings expectations experience abnormal stock returns beyond the initial effect on the announcement day. The study focuses on firms listed on the Swedish OMXSPI index over two years. Employing event study methodology, daily stock and market returns were used to calculate abnormal returns (AR) and Cumulative Abnormal Returns (CAR) following quarterly earnings announcements. Earnings surprises were quantified as the percentage deviation between reported Earnings Per Share (EPS) and analysts' consensus estimates. Ordinary Least Squares (OLS) regressions were conducted to assess the explanatory power of earnings surprises over three-time horizons (5, 20, and 40 days). The findings reveal a statistically significant but weak relationship between earnings surprises and cumulative abnormal returns beyond the announcement day, particularly over 40 days (CAR-40). However, no significant relationships were observed for shorter time frames of CAR-5 and CAR-20. A portfolio strategy based on a long-short approach, designed to capitalize on earnings surprises, failed to deliver positive abnormal returns, instead underperforming relative to the market benchmark. These results align with the Efficient Market Hypothesis, suggesting that Post-Earnings Announcement Drift (PEAD) is less pronounced in the modern Swedish market. This study contributes to the existing literature by analyzing earnings surprises and PEAD in a Nordic context and highlights the limited profitability of exploiting earnings-related anomalies. It suggests further exploration of behavioral and structural factors influencing market inefficiencies.