| Summary: | This research intends to analyze the existence of Negative Earnings Effect on the Jakarta Stock Exchange. The Negative Earnings Effect Hypothesis (NEEH) says that firms which announce negative Earnings per share (EPS) on their financial statement at the end of the year, will recover their condition and return to profitable operations and will be able to produce significantly large, positive abnormal returns front their stocks in the subsequent year.
The NEEH also argues that these firms reporting negative earnings will, in the year after the announcement, outperform firms reporting positive earnings by making larger earnings (EPS) changes. The NEEH argues that due to the loss announcement, the market does not anticipate this recovery possibility and misses a big investment opportunity. The NEEH posits that by simply buying a loss-firm's stock, one will earn a larger positive abnormal return in the following year.
Keywords: abnormal returns
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