Can Executives Predict How Firm News Affects Stock Price?

55 Pages Posted: 7 Apr 2021

See all articles by Darren Bernard

Darren Bernard

University of Washington - Department of Accounting

Elsa Maria Juliani

London Business School

Alastair Lawrence

London Business School

Date Written: March 16, 2021

Abstract

More than 650 U.S. public company executives predict the stock price response to their quarterly financial reports and share their prediction after under a nondisclosure agreement. Despite having full knowledge of the reports prior to their release, executives’ estimates differ from realized returns by roughly 100% of the average absolute one-day response (i.e., 600 to 700 basis points) and are directionally wrong in one-third of cases. Executives are more likely to trade against the market the greater their error, engage in less corporate window-dressing the more inaccurate they tend to be, and exhibit little behavior to suggest learning from unexpected price movements. Overall, the results point to a substantial disconnect between executives and investors that compromises the efficiency of capital allocation.

Keywords: public company executives, stock price expectations, market efficiency, insider trading, myopia, learning from price

JEL Classification: D84, G14, G40, M12, M41

Suggested Citation

Bernard, Darren and Juliani, Elsa Maria and Lawrence, Alastair, Can Executives Predict How Firm News Affects Stock Price? (March 16, 2021). Available at SSRN: https://ssrn.com/abstract=3806033 or http://dx.doi.org/10.2139/ssrn.3806033

Darren Bernard (Contact Author)

University of Washington - Department of Accounting ( email )

PACCAR Hall
4273 E Stevens Way NE
Seattle, WA 98195-3200
United States

Elsa Maria Juliani

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Alastair Lawrence

London Business School ( email )

Regent's Park
London
United Kingdom

HOME PAGE: http://Www.alastairlawrence.net

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