The effect of annual earnings announcements in the Netherlands

This thesis examines the stock market reaction caused by annual earnings announcements in the Netherlands. In order to do this, we monitored the short- and long-term performance of AEX listed companies which reported their annual report. The earnings announcements are categorized into two categories: earnings announcements which contain good news and earnings announcements which contain bad news. The division is made based on a comparison between the reported earnings per share and the earnings per share as estimated by analysts. We found evidence that good news leads to positive cumulative abnormal returns and bad news leads to negative cumulative abnormal returns in the short-term. In the long-term we see that stock prices drift in the direction of their initial price reaction: upwards for good news and downwards for bad news. Lastly, we found that a portfolio with a long position in stocks who reported good news and a short position in stocks who reported bad news generates a cumulative abnormal return of 2,34% when hold for 60 days. These findings are in violation with the efficient market hypothesis.