The purpose of the study is to investigate whether there are any significant abnormal returns around the quarterly earnings announcement and to examine whether the semi-strong form of Efficient Market Hypothesis (EMH) applies to the Indian stock market. This study focuses on the BSE200 index-based companies listed on the Bombay Stock Exchange (BSE) and uses quarterly earnings announcement as an event. We use event study methodology to examine the behavior of the stock prices. The results show that the security prices are predictable based on quarterly earnings announcement information and predictability can generate abnormal profits.

The Efficient Market Hypothesis (EMH), developed by Fama in the early 1960s, says that stock prices reflect all the information, and trading on the basis of this information will not produce abnormal profit. Further, Jensen (1978) argued for the same theory by stating that it is not possible to make economic profits by trading on the basis of new information. Thus, EMH asserts that it would be difficult to consistently outperform the market based on any new information. The EMH has been debated and tested by academicians over the years in different markets by using different sets of data. Much of the work on EMH is not able to provide empirical evidence to conclusively prove the existence/non-existence of the market efficiency. Therefore, we examine the EMH in the Indian stock market by investigating the semi-strong form of EMH. Semi-strong form of EMH can be examined by taking different public announcements and by testing how the stock prices respond to these announcements. One of the ways to test the EMH is to examine the stock price response to quarterly earnings announcement. The stock prices move as the market moves. Therefore, we can use the movement of the market to find the expected returns on the stocks. In this paper, we use mean adjusted model, market adjusted model and market model to examine the abnormal performance of sample companies during the quarterly earnings announcement.

Applied Finance Journal, Efficient Market Hypothesis (EMH), Bombay Stock Exchange (BSE), Average Abnormal Return (AAR), Cumulative Average Abnormal Return (CAAR), Quarterly Earnings, Announcement, Stock Price Reactions.