Analysis of stock price fluctuations before earnings statements

The stock market is forward looking; economic indicators and important future events are factored into stock prices. According to the Efficient Market Hypothesis†, markets operate efficiently and stock prices instantly and stock prices instantly reflect all information available. However, inefficiencies in the stock market exist due to the behaviors and expectations of investors. Stock prices may rise or fall based on future expectations. The S&P500 Index, a general index of market performance, increased in price before the week of Brexit and the United States General Election**. In both cases, stock prices incorporated the expectation of future performance, in the events of a “Stay” Brexit vote and Hillary Clinton victory. We see that the market has predicted wrong, and immediate declines in the S&P500 occurred after. In this paper, I analyze the stock price change before earning statements to analyze how effectively the market predicts important events such as a company’s earnings.