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Reactions of the London Stock Exchange to Company Trading Statement Announcements

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  • Nick Collett

Abstract

Using event study methodology, we examine market reactions to nearly 2,000 trading statements during the period 1995‐2001. We find that profit warnings outnumber upgrades by 50%, and, in line with previous US studies, we find that market reaction to the actual announcements is considerably greater for profit warnings than for upgrades.Sub‐samples demonstrate significant market reaction to profit warnings for all sizecontrolled portfolios, but that reaction to the announcements is greatest for small companies.Examination of pre‐ and post‐announcement CARs shows no pre‐announcement market anticipation of the announcements.Post‐announcement there is a significant positive abnormal return on the day after the announcement of bad news for the small company subsample.Other post‐announcement results are small and insignificant.Trading volume results are consistent with this picture. Finally, when the trading statements are examined for news on turnover and margin changes, we find that the market reaction to margin changes is greater than market reaction to turnover changes.

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  • Nick Collett, 2004. "Reactions of the London Stock Exchange to Company Trading Statement Announcements," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(1‐2), pages 3-35, January.
    • Handle: RePEc:bla:jbfnac:v:31:y:2004:i:1-2:p:3-35
    DOI: 10.1111/j.0306-686X.2004.00001.x
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    References listed on IDEAS

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    Cited by:

    1. Tom Berglund & P. Joakim Westerholm, 2010. "Foreign Investors' Reaction to Lower Profitability – The Role of Information Asymmetry," International Review of Finance, International Review of Finance Ltd., vol. 10(4), pages 455-483, December.
    2. David Hillier & Andrew Marshall & Patrick McColgan & Samwel Werema, 2007. "Employee Layoffs, Shareholder Wealth and Firm Performance: Evidence from the UK," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(3‐4), pages 467-494, April.
    3. Matthew Church & Han Donker, 2010. "Profit warnings: will openness be rewarded?," Applied Economics Letters, Taylor & Francis Journals, vol. 17(7), pages 633-637.
    4. Fouad Kessasra, 2023. "Mandatory Disclosures and Market Reaction: Evidence from Qatar Stock Exchange," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 15(2), pages 1-44, February.
    5. Paulo Alves & Peter Pope & Steven Young, 2009. "Cross‐border information transfers: Evidence from profit warnings issued by European firms," Accounting and Business Research, Taylor & Francis Journals, vol. 39(5), pages 449-472.
    6. Elisabeth Dedman, 2004. "Discussion of Reactions of the London Stock Exchange to Company Trading Statement Announcements," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(1‐2), pages 37-47, January.

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