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Primary Article

Changes in the Behavior of Earnings Surprise

International Evidence and Implications

Ron Bird and John McKinnon
The Journal of Investing Fall 2001, 10 (3) 19-32; DOI: https://doi.org/10.3905/joi.2001.319469
Ron Bird
An emeritus professor in the School of Finance and Economics at the University of Technology in Sydney, Australia. He is academic adviser to Grantham, Mayo, Van Otterloo and Co., LLC (Boston).
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John McKinnon
Director of research and chief investment officer at GMO Australia Limited in Sydney.
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Abstract

Earnings surprise has been shown to be an important driver of the underreaction/overreaction price response of stocks to new information. The received wisdom has been that financial analysts' forecasts have typically been optimistic, resulting in a negative bias in earnings surprise. In an international study of trends between 1976 and 1999, the authors suggest a change in the behavior of earnings surprise. In the U.S. market, analysts have become quite pessimistic in their earnings forecasts, and an increasing number of U.S. firms have announced small positive earnings surprises; the findings in Japan are exactly the opposite. A major driving force behind differences in behavior has been the relative state of the two economies, and in the U.S. growth in the use of stock options has caused management to be more interested in boosting the short-term share price.

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The Journal of Investing
Vol. 10, Issue 3
Fall 2001
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Changes in the Behavior of Earnings Surprise
Ron Bird, John McKinnon
The Journal of Investing Aug 2001, 10 (3) 19-32; DOI: 10.3905/joi.2001.319469

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Changes in the Behavior of Earnings Surprise
Ron Bird, John McKinnon
The Journal of Investing Aug 2001, 10 (3) 19-32; DOI: 10.3905/joi.2001.319469
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