Date of Award

Spring 2016

Degree Name

Bachelor of Science



First Advisor

Joshua R. Stillwagon


The 2008 financial crisis and recent volatility in global markets have provided important motivations to better understand the functioning of equity markets, since stock market crashes can trigger severe recessions through wealth and balance-sheet effects. Against efficient market theory, the literature has found much evidence that stock price movements seem unrelated to expected future movements in corporate fundamentals. This thesis investigates the impact of earnings announcement surprise on stock prices and contributes to the existing literature by examining the impact’s dependency on various factors (the P/E ratio, the output gap, whether the forecast error is positive or negative, and the distribution of forecasts). The thesis measures earnings surprise with Bloomberg quarterly forecasts for three companies (Hewlett Packard, IBM, and Walt Disney) from 1984 to 2015. Regression results indicate that positive surprise tends to raise stock prices around announcement days, with the exception of IBM. Other factors affect each company with different significances and magnitudes. Positive surprise has a smaller impact than negative surprise under a lower P/E ratio or a decreasing output gap. When the standard deviation of forecasts is high, investors may respond more or less to earnings surprise.


Senior thesis completed at Trinity College, Hartford, Connecticut for the degree of Bachelor of Science in Economics.