Share price reaction to earnings announcement on the JSE-ALtX: A test for market efficiency

  • VF Mlonzi
  • J Kruger
  • MG Nthoesane
Keywords: efficient market hypothesis, earnings announcement, capital asset pricing model, post-earnings announcement drift, event studies


Management has a duty to inform both shareholders and investors
about the state of health of a firm. Earnings announcements provide
a yardstick that can be utilised by the market to assess the wealth and
profitability of a firm. The purpose of the study was to investigate
whether there are any significant abnormal returns around the public
announcement of earnings and to establish whether the efficient
capital market hypothesis applies to the small ALtX market.
16The study focused on all the companies listed on the JSE-ALtX that
announced annual earnings between 1 January and 31 December
2009. The method used for calculating the expected returns was the
Capital Asset Pricing Model (CAPM).
17Empirical evidence demonstrates that there is substantial negative
share price reaction to earnings announcements on the small
ALtX stock market. The ALtX also shows the weak form of market
efficiency. The study concluded that during a recessionary period,
shareholders’ wealth is eroded in the small ALtX market; however,
the weak form of market efficiency provides an opportunity for
entrepreneurs and investors to exploit the market for profits when
the market is performing well.

Journal Identifiers

eISSN: 1998-8125
print ISSN: 1561-896X