The Effect of Quarterly Earnings Surprises on Stock Prices in the S&P 500 : A quantitative study on the effects of earnings surprises and post-earnings-announcement drift on companies listed on the S&P 500

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Title: The effect of quarterly earnings surprises on stock prices in the S&P 500 - a quantitativestudy on the effect of earnings surprises and post-earnings-announcement drift on companieslisted on the S&P 500 Purpose: The purpose of this thesis is to examine how positive and negative earnings surprisesinfluence short-term stock price reactions in firms listed on S&P 500 in the year 2025 and todetermine whether these price effects persist beyond the announcement day. Background: Earnings surprises play a crucial role for market participants as they providevaluable insight into a firm’s performance, which can significantly impact the firm’s stock price.According to the Efficient Market Hypothesis (EMH), all available information should beincorporated into stock prices immediately. Prior research shows that earnings surprises typicallygenerate immediate price reactions, however, findings differ regarding whether markets fullyadjust immediately or whether post-earnings-announcement drift (PEAD) occurs. Problem formulation:- Do stock prices react differently to positive and negative earnings surprises at thequarterly earnings announcements in the S&P 500 within the event window of ±5 days?- Does the price reaction persist beyond the announcement day within the ±5 eventwindow?- Does a larger earnings surprise lead to a stronger cumulative abnormal return (CAR)? Methodology: This study applies a quantitative event study methodology to measure abnormalreturns (AR) and cumulative abnormal returns (CAR) using t-test analysis within an eventwindow of ±5 trading days around quarterly earnings announcements. The sample consists of 30S&P 500 firms selected through stratified sampling. Furthermore, regression analysis was usedto test whether the magnitude of earnings surprise can explain variation in CAR. Conclusions: The results indicate that both positive and negative earnings surprises generateimmediate price reactions in the expected direction of the news, with negative surprisesproducing stronger reactions. However, abnormal returns tend to disappear quickly after theannouncement, indicating that the market incorporates new information efficiently. Nostatistically significant post-earnings-announcement drift (PEAD) was detected in the examinedwindow. Furthermore, the magnitude of the earnings surprise does not significantly explain thevariation of CAR, suggesting that the size of the surprise does not necessarily influenceshort-term price adjustments. Together, these findings suggest that the modern S&P 500 marketincorporates earnings information efficiently, while investors are sensitive to negative newswhich continues to shape short-term price adjustments. Keywords: Efficient Market Hypothesis (EMH), Post-earnings-announcement drift (PEAD),Earnings Surprise, Abnormal Returns (AR), Cumulative Abnormal Returns (CAR), Event studymethodology , S&P 500