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?

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

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.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Bad News Inc. just announced a decrease in its quarterly earnings, yet stock price increased. Is...
Bad News Inc. just announced a decrease in its quarterly earnings, yet stock price increased. Is there a rational explanation for the phenomenon?
Nicholas Manufacturing just announced yesterday that its fourth quarter earnings will be 10% higher than last...
Nicholas Manufacturing just announced yesterday that its fourth quarter earnings will be 10% higher than last year's fourth quarter. Nicholas had an abnormal return of 1.2% yesterday. This suggests that _________ A. investors expected the earnings increase to be larger than what was actually announced. B. earnings are expected to decrease next quarter. C. Nicholas' stock will probably rise in value tomorrow. D. the market is not efficient. E. investors expected the earnings increase to be smaller than what was...
The Business Case for Agility “The battle is not always to the strongest, nor the race...
The Business Case for Agility “The battle is not always to the strongest, nor the race to the swiftest, but that’s the way to bet ’em!”  —C. Morgan Cofer In This Chapter This chapter discusses the business case for Agility, presenting six benefits for teams and the enterprise. It also describes a financial model that shows why incremental development works. Takeaways Agility is not just about the team. There are product-management, project-management, and technical issues beyond the team’s control. Lean-Agile provides...
Please answer the following Case analysis questions 1-How is New Balance performing compared to its primary...
Please answer the following Case analysis questions 1-How is New Balance performing compared to its primary rivals? How will the acquisition of Reebok by Adidas impact the structure of the athletic shoe industry? Is this likely to be favorable or unfavorable for New Balance? 2- What issues does New Balance management need to address? 3-What recommendations would you make to New Balance Management? What does New Balance need to do to continue to be successful? Should management continue to invest...
Polly Peyrotte started designing and decorating fine china plates more than 100 years ago. As her...
Polly Peyrotte started designing and decorating fine china plates more than 100 years ago. As her artistry caught on, she became famous. She also turned out to have considerable business skills. She grew her design studio into what today is Polly Plates, Inc. (PPI), with $36 million in annual revenue. Polly’s daughters and granddaughters became involved in the business after Polly’s retirement and hired talented designers who could carry on Polly’s tradition of beautiful plates. In recent years, however, fewer...
provide 3-4 paragraphs post (team 2) 1-What are 4 key things you learned about the topic...
provide 3-4 paragraphs post (team 2) 1-What are 4 key things you learned about the topic from reading their paper? 2-How does the topic relate to you and your current or past job? 3-Critique the paper in terms of the organization and quality.1- Employee Stress and how it has an Adverse Effect on a Company This paper explores employee stress and how it has an adverse effect on a company, its employees and the organization. Job stress can have a...
What role could the governance of ethics have played if it had been in existence in...
What role could the governance of ethics have played if it had been in existence in the organization? Assess the leadership of Enron from an ethical perspective. THE FALL OF ENRON: A STAKEHOLDER FAILURE Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant tilted "£"' in front, slowly revolving in the Texas sun. The Enron Corporation, which once ranked among the top Fortune 500 companies, collapsed in 2001 under a mountain of debt...
Discuss ethical issues that can be identified in this case and the mode of managing ethics...
Discuss ethical issues that can be identified in this case and the mode of managing ethics Enron finds itself in this case. How would you describe the ethical culture and levels of trust at Enron? Provide reasons for your assessment. THE FALL OF ENRON: A STAKEHOLDER FAILURE Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant tilted "£"' in front, slowly revolving in the Texas sun. The Enron Corporation, which once ranked among...
Read the attached articles about the proposed merger of Xerox and Fujifilm. Utilizing your knowledge of...
Read the attached articles about the proposed merger of Xerox and Fujifilm. Utilizing your knowledge of external and internal analysis, business and corporate strategy, and corporate governance, please discuss the following questions: 1. What is the corporate strategy behind the merger of Xerox and Fujifilm? 2. Why did Xerox agree to the merger? Is this a good deal for Xerox? Discuss the benefits and challenges they face with the merger. 3. Why did Fujifilm agree to the merger? Discuss the...
Sign In INNOVATION Deep Change: How Operational Innovation Can Transform Your Company by Michael Hammer From...
Sign In INNOVATION Deep Change: How Operational Innovation Can Transform Your Company by Michael Hammer From the April 2004 Issue Save Share 8.95 In 1991, Progressive Insurance, an automobile insurer based in Mayfield Village, Ohio, had approximately $1.3 billion in sales. By 2002, that figure had grown to $9.5 billion. What fashionable strategies did Progressive employ to achieve sevenfold growth in just over a decade? Was it positioned in a high-growth industry? Hardly. Auto insurance is a mature, 100-year-old industry...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT