Behaviour of excess stock return around earnings announcement day: A test of the efficiency of Kuala Lumpur stock exchange

Abstract

This study is concerned with analyzing stock returns around periods of earnings announcements. Three hundred and sixty-four earnings announcement dates (events) were obtained from the annual earnings announcements of 91 stocks listed on the main board of KLSE for the years 1993 to 1996. For each event market model parameters were estimated and adjusted for thin trading using daily return data for the period six months before the event. The estimated parameters were then used to estimate the residuals for the period 29 days before and 30 days after the announcements. The cumulative average residuals. CAR was found to exhibit a significantly negative trend for more than a month after the announcement. Thus with respect to stocks in the sample the KLSE does not adjust instantaneously to the release of earnings information and hence the KLSE is semi-strong inefficient.