Exploring Share Price Dynamics: An Empirical Analysis of Factors Surrounding Earnings Releases in the Context of the Efficient Market Hypothesis and Event Study Theory

Abstract

The topic of this thesis is measuring the extent to which the Danish stock exchange is efficient, based on the foundations proposed in the semi-strong form of the Efficient Market Hypothesis. Evidence from other markets and countries suggests that the likelihood of an entirely efficient market is small, as findings seem to indicate the potential presence of deviations from theory, such as post-earnings announcement drift. To conclusively understand the efficiency of the Danish market, various stock data is collected, including closing stock prices and earnings announcement dates, from January 2011 – March 2024, including a comprehensive overview of analyst forecasts, allowing for the segmentation into different news categories based on specific firm’s earnings surprise. Hereafter, event study methodology is applied to identify the dynamics of the stock movement in a window surrounding the annual earnings releases. The findings in this thesis suggest that the Danish stock cannot be said to be entirely efficient due to the presence of drift, which is a substantial indicator that not all information is being considered in the stock price on the day of the event, which is a necessary criterion in the foundations of the efficient market hypothesis.