How Fundamentals and Investor Sentiment Shape Short-Term Price Dynamics Following Earnings Announcements

This paper analyzes how different types of information affect how the market reacts to earnings announcements. This is done by focusing on short-term price dynamics following earnings announcements explained by EPS Surprise and Sentiment. The market reaction is measured as overnight and intraday abnormal returns. The main findings indicate an immediate overnight reaction associated with both EPS Surprise and Sentiment, with suggestive evidence of an intraday reversal primarily driven by sentiment. At the end of the day the fundamentals were the dominating variable for the outcome.