The Reaction of Investors to Profit Warnings in the UK Market
Speaker
Abstract
| On Friday, September 14, 14.00 hours, Eric Duca will defend his MPhil thesis entitled “The Reaction of Investors to Profit Warnings in the UK Market”. His supervisors are Dr. Jeroen Suijs, Associate Professor of Financial Accounting and Dr. Marie Dutordoir, Assistant Professor of Corporate Finance and both from RSM Erasmus University. |
| Profit warnings are a key corporate event, with this study showing that prices of companies in the UK market fall by around 22% during the period surrounding a warning. Knowledge of the relationship between warnings and firm characteristics allows managers to anticipate the effects on their share price. Investors, on the other hand will be able to construct favourable trading strategies if prices over or under react to warnings. This study shows that a large part of the drop in price across firms is related to changes in firm-specific volatility after the warning. In contrast I find almost no evidence that the reaction to a warning reflects future changes in profitability. The market tends to anticipate warnings in advance. Volatility increases and prices tend to drift slowly downwards for six months after the warning, but volatility decreases and prices reverse direction thereafter. |
| Contact information: |
| Myra Lissenberg - van der Pennen |
