The informational content of trading statement releases on the JSE

Master Thesis


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University of Cape Town

A prevalent finding in prior literature, both internationally and domestically, is the association between earnings information, contained in earnings announcements, and share returns leading up to and following the publication. This study pulls together evidence across stock exchanges worldwide on which to draw comparisons of market efficiency. For the first time on the Johannesburg Stock Exchange (JSE), an event study analysis is conducted on the effects of a cautionary announcement known as a trading statement. While most research has focused on the official earnings announcements, this pioneering study synthesizes methodology adopted in related prior research to create a robust, relevant study of efficiency on the JSE. The aim of this study is to identify whether there is a relationship between unexpected earnings measures (often referred to as 'earnings surprises'), conveyed by trading statements, and future share returns. This study examines the importance, timeliness and financial exploitability of trading statement releases for both the regulator and investor. Lack of depth in trading statement history limits sample size and renders traditional earnings expectation models, which rely on comparative period figures, useless. Resultantly, numerous returnbased unexpected earnings models had to be adopted to estimate earnings surprises and gauge the predictability of future share returns.

Includes bibliographical references.