Question

Firm XYZ just announced an increase in its quarterly earnings, but its stock price fell substantially....

Firm XYZ just announced an increase in its quarterly earnings, but its stock price fell substantially. Is there a rational explanation for this phenomenon? That is, why might the market react negatively to something that on the surface looks like the release of good news?

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Answer #1

It has often been seen that stock tends to plunge on the good news or when the firm releases its earning reports. Stock declines even though the report shows that the profits of firms have increased.

The stock market works on expectations and rumors. The stock price will decline if released profit is less than the expected ones. Market investors collect advance researches and project the expected profit figures. Such figures determine the value of the stock. If the actual profit of the firm is less than projected or expected, the investors downgrade the stock value by selling stock.

Hence, good news leads to a decline in the price of the stock.

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