Earnings Surprises

Several websites list information on earnings surprises. Much of the information supplied is from Zacks.com. Each day the largest positive and negative surprises are listed. Go to www.zacks.com/research/earnings/today_eps.php and identify the top positive and the top negative earnings surprises for the day. The table will list the time and date of the announcement. Do you notice any difference between the times of day positive announcements tend to be made vs. negative announcements?

Identify the tickers for the top three positive surprises. Once you have identified the top surprises, go to http://finance.yahoo.com. Enter the ticker symbols and obtain quotes for these securities. Examine the 5-day charts for each of the companies. Is the information incorporated into price quickly? Is there any evidence of prior knowledge or anticipation of the disclosure in advance of the trading?

Choose one of the stocks listed and click on its symbol to follow the link for more information. Click on the link for Interactive Java Charting that appears under the graph. In the Graph Control dialog box choose a period of 5 years and check the box that says "EPS Surprise". The resulting chart will show positive earnings surprises as green bars and negative surprises as red bars. You can move the cursor over various parts of the graph to investigate what happened to the price and trading volume of the stock around each of the surprise events. Do you notice any patterns?

Efficient and Insider Trading

Do restrictions on insider trading limit strong-form market efficiency? Go to www.Insider-Monitor.com and click on the Strategy link. Read through the rules presented, paying special attention to the rules about purchases by company officers and clusters of inside buyers. On the left-side menu, click on the link to Clusters This Week and look for clusters of purchases by a company's officers (not directors or beneficial owners).

Once you have identified a company with this pattern, note the date(s) on which the trades occurred. Click on the stock's symbol, and then click on the link for Basic Stock Information. This will take you to the Yahoo! Finance site. Click on the link for Historical Prices on the left-side menu and enter a data range from five days before the earliest purchase date to the current date. Choose daily prices and determine what happened to the stock's price during this period. What do you conclude about the investment timing of the insiders?