James M. Patell

The intraday speed of adjustment of stock prices to earnings and dividend announcements

Abstract This paper examines the effects of Broad Tape news releases of earnings and dividend announcements on three aspects of intraday stock price behavior: mean returns, return variance, and serial correlation in consecutive price changes. The initial price reaction is evident in the first pair of price changes following the release (i.e., within a few minutes, at most). The returns earned by simple trading rules dissipate within five to ten minutes, although significant returns are detected in the overnight period and at the opening of trading on the next day. Disturbances in the variance and serial correlation persist for several hours and extend into the following trading day. As a class, dividend announcements induce much less activity than do earnings, although the response to dividend changes is comparable to the earnings announcement effect.

Anticipated information releases reflected in call option prices

Abstract This study captures the ex ante information content of a financial reporting event (the annual earnings announcement) by examining the behavior of call option prices on dates leading up to and passing through the disclosure date. This approach differs from most previous empirical security price research which has been ex post in nature. The hypothesis that investors anticipate that the future release of annual earnings numbers will affect security prices is empirically confirmed. In particular, systematic changes in variance rates implied by the Black-Scholes option pricing model are demonstrated.

The Experimental Design of Classification Models: An Application of Recursive Partitioning and Bootstrapping to Commercial Bank Loan Classifications

This paper examines several issues in the experimental design and empirical testing of classification models. As an illustration, we focus on the classification of commercial bank loans. We stress the importance of and the interactions among three elements: the loss function associated with classification errors, the algorithm used to discriminate among or predict classifications, and the method used to estimate the expected misclassification losses achieved by various algorithms. These aspects of the design are of particular importance when an empirical researcher must proceed without the guidance of a well-specified model of the phenomenon under investigation. We use two nonparametric, computer-intensive statistical techniques

Accumulating Damages in Litigation: The Roles of Uncertainty and Interest Rates

THE analysis presented here concentrates on one aspect of the problem of computing damage compensation: the accumulation of the dollar amount of the damages from the date of harm to the payment date. In attempting to compensate the plaintiff for the passage of time between damage and settlement, we must consider both the deferral of consumption and the resolution of uncertainty which occur during that interval. The bearing of risk and the market values of various risky claims figure prominently in the calculation of the proper interest rate. Uncertainty plays a key role in the analysis. In particular, three critical questions can be raised: (1) Will the defendant have sufficient funds to pay the accumulated amages when the suit is finally settled? (2) If the damage consisted of deprivation of a business opportunity, what was the ex ante probability distribution of outcomes, and which particular outcome oc-

Discussion of On the Usefulness of Earnings and Earnings Research: Lessons and Directions from Two Decades of Empirical Research

Professor Lev has shouldered a heavy burden: he highlights an important characteristic running through 20 years of accounting research, he explicitly examines a large bibliography of work, and he proposes a broad research agenda. In the brief space allotted here, one cannot defend all 20 years of study or answer all of the research questions posed. Therefore, I shall pursue the more modest goals of summarizing the discussion at the conference, raising some further points that were not addressed there and reorganizing some of the ideas to present them in a parsimonious, structured manner. As promised in its title, the paper seeks to evaluate the usefulness of the earnings measurement process and the accompanying empirical accounting research. Lev proposes a seemingly straightforward evaluation scheme, which we might label the Sufficient Statistic Criterion. To state the criterion somewhat more severely than Lev actually implies:

The Role of Statistics in Accounting, Marketing, Finance, and Production

1. Financial accounting (external reporting): (a) understanding and/or preparing financial accounting statements according to generally accepted accounting principles (GAAPs) and (b) financial statement analysis, including the effects of accounting disclosures on various markets (primarily capital markets). 2. Managerial accounting (internal planning and control): models that represent and evaluate the firms production and investment activities.

Discussion of The Impact of Price-Level Adjustment in the Context of Risk Assessment and The Effect of General Price-Level Adjustments on the Predictive Ability of Financial Ratios

In discussing the papers by Short and Ketz, I will concentrate on two issues, their research designs and the interpretation of their statistical results. The studies share remarkably similar experimental designs, and we will be interested both in examining individual elements of the designs and in determining what inferences can be drawn from the studies. The comments on interpretation will be specific to each paper and are intended to indicate ways in which the papers could be altered or extended in order to make the inferences more precise and cogent.