Earnings forecast revisions and security returns: Canadian evidence

The impact that revisions of financial analysts' forecasts of earnings have on Canadian security returns during the 1979-1988 period is tested using an event study methodology. A post-revision announcement drift in security prices is documented; the Canadian capital market displays a marked delay in reacting to positive revisions in earnings forecasts. Contingent on revision size, positive and significant excess returns are apparent for up to 7 months following their release. The returns, before transaction costs, are not marginal; over a 12-month holding period, excess returns are 18.2%. The results for negative and non-revisions in earnings forecasts suggest that the market reacts quite efficiently to the information implicit in these events.