Browsing by Author "Haavisto, Arttu"

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  • Contrast effects in reactions to earnings announcements
    (2022) Haavisto, Arttu
     School of Business | Master's thesis
    Contrast effect is a behavioral error, where a related prior observation has an inverse effect on the perception of the following one. New evidence in financial literature shows that the effect has potential to induce short-term mispricing when investors contrast consecutive pieces of earnings announcement news on one another. The purpose of this paper is to revisit the topic and to study the effect by employing a new set of data consisting of large publicly listed U.S. companies in the 21st century. The results presented in this paper are inconclusive and to an extent contradicting with prior literature. The results of the full-sample OLS regressions show no evidence of a contrast effect between any proxy for a salient earnings surprise and the short term returns of firms announcing their earnings the following day. However, splitting the sample into subsamples based on business cycles shows that, during the longest continuous economic expansion period from 2009 to 2020, the contrast effect is economically and statistically significant, albeit not robust to the inclusion of year-month fixed effects. During this period, the mispricing persists for up to five trading days, and is driven by consecutive announcements by firms in the top NYSE size decile.
  • The predictive power of cyclical consumption for stock market returns in the Nordic countries
    (2020) Haavisto, Arttu
     School of Business | Bachelor's thesis
    In this paper, I show that cyclical deviations from the long-term growth trend of consumption give useful information on future stock market returns in the Nordic countries. In-sample predictive regressions show significant negative correlations between the cyclical component of consumption and future returns across all Nordic markets. However, one-quarter-ahead out-of-sample tests suggest the cyclical consumption model outperforms a historical average forecast only in Finland. The in-sample results are economically sizable and robust to a number of alternative detrending methods.