Market Reactions to Corporate Earnings Under Different Volatility Regimes

Earnings announcements impact a company's stock volatility. Reference [1] examined the earnings reports of Dow Jones Industrial Average components over 10 years to better understand the relationship between different volatility regimes and the time it takes for earnings information to be fully absorbed by the market.

The study focuses on the past ten years, a period that includes three distinct volatility regimes, multiple economic cycles, and shifts from low to rising and ultimately declining interest rates. These evolving market conditions provide a diverse backdrop for assessing how corporate earnings disclosures influence investor behavior and price discovery.

The authors pointed out,

Our analysis as shown in Table 3, confirms the initial hypothesis that the time required for a firm’s earnings or performance news to be fully incorporated into its stock price depends substantially on the prevailing volatility regime, as identified by the SETAR model. Under high-volatility conditions, investors process information more swiftly, leading to shorter impulse response functions (IRFs) being derived from the VAR model. Conversely, information diffuses slower in low-volatility markets, resulting in extended IRFs. While most stocks among the Dow 30 revert to baseline levels within 3–5 days, technology and financial firms often display more drawn-out fluctuations due to their heightened sensitivity to market sentiment and macroeconomic indicators.

…Higher-beta stocks, such as Boeing (BA) and Goldman Sachs (GS), exhibited more significant and persistent price swings, even in conditions where rapid market absorption would otherwise be expected. This phenomenon is especially evident during lower-volatility regimes, suggesting that firm-specific risk factors can prolong the market’s adjustment process despite a relatively subdued overall sentiment.

In short, the time required for earnings news to be fully reflected in stock prices depends on the prevailing volatility regime. In high-volatility markets, investors process information faster, while in low-volatility conditions, information diffuses more slowly. Higher-beta stocks show more persistent price swings, especially in low-volatility environments.

The authors also discuss the policy implications of their findings regarding the frequency of financial reporting,

…frequent reporting can enhance market transparency and amplify short-term volatility and sector-specific risks. Policymakers could exempt specific high-volatility sectors from mandatory frequent reporting to balance transparency with market stability.

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References

[1] Ugras, Y. J., & Ritter, M. A. (2025). Market Reaction to Earnings Announcements Under Different Volatility Regimes. Journal of Risk and Financial Management, 18(1), 19.

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