Studying the Relationship between Unexpected Changes in Income and Earnings and Stock Exchange Returns

Regarding the importance of prediction of stock exchange returns for investors, analysts and predictors, in this study, the relationship between unexpected changes in three-month revenues with consistent earnings growth and stock exchange returns and also the market reaction to the additional conveyed earnings information is investigated. This study is based on 63 industrial companies, having the required qualifications for the present study, listed in Tehran Stock Exchange during the years 2001 to 2013. Multivariate regression was used to test the hypothesis. Research findings show that the stock market meaningfully and timely react to sudden changes in income. Moreover, after controlling for unexpected changes in earnings, there is a significant relationship between stock exchange returns with unexpected changes in income in the range of earnings announcement. The findings also show that there is no significant relationship between the reaction in the stock price after the earnings announcement range and unexpected changes in income in the current range.