13 The type of shares referred to in the computation of EPS is the ordinary shares or also known as common shares in which the number of preference shares is to be excluded. Ball and Brown (1968) were the first to note that even after earnings are announced, the estimated cumulative abnormal returns continue to drift up for good news companies and down for bad news companies. In the US, corporations announce earnings quarterly during the first week of every next quarter. But issue earnings warning typically during the last week of the current quarter. The authors highlighted that unfortunately in many studies abnormal returns are measured as return
in excess of the market return, which holds the implicit assumption that the stock in question has a unit CAPM. He further elaborated that if abnormal return is measured as excess return, abnormal return is underestimated for stock with CAPM betas less than unity. On the other hand, the stock was overestimated if the CAPM betas were greater than unity. The authors failed to mention other possible factors that could influence the stock price.
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