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Trading on Corporate Earnings News: Profiting from Targeted, Short-Term Options Positions by Ping Zhou, John Shon

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Chapter 14. Earnings Surprise Persistence

As we discussed with the examples of Apple and Ford Motor Company in Chapter 4, “Earnings Surprises: Empirical Evidence,” analysts sometimes seem to consistently underestimate (or overestimate) earnings for some companies. Are these two examples merely a coincidence? Or do they reflect a broader empirical pattern? How common are companies that persistently report earnings surprises? Can Apple continue to blow away expectations quarter after quarter? Put differently, how much can we learn about future earnings surprises by examining past earnings surprises?

We set out to answer this question by examining the data. Specifically, we calculated the earnings surprises for all Russell 1000 companies during ...

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