The reaction of investors to earnings announcements on the Johannesburg Stock Exchange

Abstract

The efficient market hypothesis (EMH) has been a subject of interest since the 1950s and 1960s. The EMH is centred on information efficiency, that is all public and private information is immediately reflected in the market prices. In the African context, it is argued that some of the stock exchanges are weak form efficient because of impairment in information flow. This research analyses the information efficiency of the Johannesburg Stock Exchange by investigating the impact of earnings surprise on investors. The research further examines the presence of post-earnings announcement drift. Earnings announcements for firms ranked as being in top 500 in their sector and industry are included in the study. Using event studies, the empirical results illustrate that earnings surprise have an impact on investors; however, these are influenced by external factors.