Informational efficiency and the information content of earnings during the market crash of October 1987☆

Abstract

This paper examines the joint hypothesis that stock markets were efficient with respect to announcements of quarterly earnings and that these earnings numbers were important in the determination of equilibrium security prices in four subperiods before, during, and after the crash of October 1987. Results for the complete sample and the NYSE subsample strongly support the joint hypothesis in each subperiod, except for the worst of the crash, October 19–20, 1987. In contrast, NASDAQ firms reacted in the predicted direction during most subperiods (including the crash), but not all associations were significant.