Review Reports - Market Reaction to Earnings Announcements Under Different Volatility Regimes

Round 1

Reviewer 1 Report

Comments and Suggestions for Authors The study explores the impact of financial reporting frequency on stock market behavior, focusing on volatility regimes. Specifically, it examines how quarterly reporting affects market efficiency and investor reactions within the Dow Jones Industrial Average (DJIA). This research addresses a critical and timely topic in financial economics by linking reporting frequency with stock price volatility. The study is highly relevant, particularly given ongoing debates about the trade-off between transparency and market stability. It adds value by employing econometric models such as VAR, IRF, and SETAR to analyze complex interactions in a significant market index, which enhances the understanding of short-termism in corporate reporting practices. The findings contribute to the literature on market efficiency by demonstrating that quarterly reporting intensifies market responses during high-volatility periods. The study bridges a gap in existing research by providing a nuanced analysis of the role of sector-specific dynamics in investor reactions. The proposed regime-based approach (low, intermediate, high volatility) offers a novel framework for understanding market behavior. The authors provide robust evidence to support their claims. The conclusions align with the presented data and effectively address the central hypothesis. However, additional elaboration on the implications for sectors beyond the DJIA and suggestions for policymakers would strengthen the impact of the conclusions. The use of advanced econometric techniques is a strength of the study. However, more detailed explanations of the assumptions and limitations of models like SETAR are needed to enhance transparency. For example: - What thresholds define the volatility zones, and how sensitive are these to model assumptions? - Why were three lagged terms optimal, and what implications does this choice have for generalizability? The references are generally appropriate and encompass a wide range of seminal and recent works. However, the integration of these references into the discussion is somewhat limited. For instance: - The study could engage more critically with contrasting viewpoints, such as those advocating for semi-annual reporting. - The tables provide valuable insights but could benefit from standardization and clearer captions. - Figure illustrating the impulse response function (IRF) results across volatility regimes would significantly enhance clarity. Some other suggestions for improvement are following: - regarding to volatility mechanisms: Expand on the factors driving heightened market reactions under high volatility. Incorporating theoretical perspectives (e.g., behavioral finance models) could enrich the discussion]; - regarding to long-term effects: While the focus is on short-term reactions, a brief discussion of long-term implications would provide a more balanced view; - regarding to broader implications: Consider extending the analysis to other indices or markets for broader applicability; - Clarify whether the dataset includes adjustments for seasonality or other periodic effects; - Remove JEL classifications from the manuscript if not required. The study makes a substantial contribution to the understanding of financial reporting's role in market dynamics. By addressing the suggested improvements, the authors can enhance the clarity, applicability, and impact of their findings. Long-term Effects: While the focus is on short-term reactions, a brief discussion of long-term implications would provide a more balanced view; - Broader Implications: Consider extending the analysis to other indices or markets for broader applicability; - Formatting: Adjust tables and figures to align with journal formatting guidelines and improve readability; - Clarify whether the dataset includes adjustments for seasonality or other periodic effects; - Remove JEL classifications from the manuscript if not required. The study makes a substantial contribution to the understanding of financial reporting's role in market dynamics. By addressing the suggested improvements, the authors can enhance the clarity, applicability, and impact of their findings.

Author Response

Additional elaboration on the implications for sectors beyond the DJIA and suggestions for policymakers would strengthen the impact of the conclusions.
Many thanks for the input. Please see the paragraph starting line 383 addressing this concern.
More detailed explanations of the assumptions and limitations of models like SETAR are needed to enhance transparency. For example: - What thresholds define the volatility zones, and how sensitive are these to model assumptions? - Why were three lagged terms optimal, and what implications does this choice have for generalizability?
Many thanks for the input. Please see the revised section 4.1.
The integration of these references into the discussion is somewhat limited. For instance: - The study could engage more critically with contrasting viewpoints, such as those advocating for semi-annual reporting.
Many thanks for the input. We have made significant revisions to the literature review section and attempted to further integrate the references to the discussion.
The tables provide valuable insights but could benefit from standardization and clearer captions. - Figure illustrating the impulse response function (IRF) results across volatility regimes would significantly enhance clarity.
Many thanks for the input. We have added a new table (Table 3) to clarify this concern (line 405)
regarding to volatility mechanisms: Expand on the factors driving heightened market reactions under high volatility. Incorporating theoretical perspectives (e.g., behavioral finance models) could enrich the discussion]; -
Many thanks for the suggestions. We have made significant revisions to section 5.
regarding to long-term effects: While the focus is on short-term reactions, a brief discussion of long-term implications would provide a more balanced view; - regarding to broader implications; While the focus is on short-term reactions, a brief discussion of long-term implications would provide a more balanced view;
Many thanks for the suggestions. We have made significant revisions to section 5 and 6.
Consider extending the analysis to other indices or markets for broader applicability;
Many thanks for the input. Please see the revisions made in section 5 of the manuscript and the limitations specified in section 6.
Clarify whether the dataset includes adjustments for seasonality or other periodic effects;
Many thanks for the input. We have included a limitation about these items in the conclusion section of the paper.
Remove JEL classifications from the manuscript if not required
Many thanks for the input. We have removed some of the JEL classifications.

Adjust tables and figures to align with journal formatting guidelines and improve readability;

Many thanks for the input. Further edits have been made to address this concern.

Reviewer 2 Report

Comments and Suggestions for Authors

This paper addresses a current topic, "the impact of reporting frequency on market reactions and stock price volatility," with strong econometric models and a sizeable dataset. The underlying methodological approach is sound and provides insights into sector-specific responses to market volatility, hence contributing meaningfully to financial reporting and market behaviour literature. However, some recommendations are deemed required to meet the quality required by the journal standards.

1. Literature Review: The review is too broad and not focused, citing many indirect studies without relating them to the specific research questions. A critical literature synthesis is needed to identify gaps and situate the current study more clearly.

2. Results and Discussion: Although the results are well-documented, they remain primarily descriptive, with little depth in analysis. The findings are not well-linked to the hypotheses or theoretical frameworks, which has implications for this study's contribution to academic discourse.

3. Policy Implications: While the paper claims to have practical insights for policymakers, it does not specify these, nor are they well-supported by the findings. Concrete, actionable recommendations are needed.

4. Limitations and Avenues for Future Research: The paper does not sufficiently reflect on its limitations or provide any clear indications of the way forward for future research, an essential factor in framing the contribution of this work and inspiring interest in further investigation.

If these issues are considered, the paper could contribute to the literature on this topic.

Comments on the Quality of English Language

Simplification and streamlining are necessary to improve accessibility without losing rigour.

Author Response

Reviewer 2 items:

Literature Review: The review is too broad and not focused, citing many indirect studies without relating them to the specific research questions. A critical literature synthesis is needed to identify gaps and situate the current study more clearly.
Many thanks for the input. We have made significant revisions to the literature review section and attempted to further integrate the references to the discussion.
Results and Discussion: Although the results are well-documented, they remain primarily descriptive, with little depth in analysis. The findings are not well-linked to the hypotheses or theoretical frameworks, which has implications for this study's contribution to academic discourse.
Many thanks for the input. . We have made significant revisions to the results and discussions to address this concern;
Policy Implications: While the paper claims to have practical insights for policymakers, it does not specify these, nor are they well-supported by the findings. Concrete, actionable recommendations are needed.
Many thanks for the input. We have expanded the conclusion section of the paper and addressed this item.
Limitations and Avenues for Future Research: The paper does not sufficiently reflect on its limitations or provide any clear indications of the way forward for future research, an essential factor in framing the contribution of this work and inspiring interest in further investigation.

Many thanks for this input. We have added limitations and future research to the manuscript.

Reviewer 3 Report

Comments and Suggestions for Authors

Please refer to my comments within the reviewing report for details.

Comments for author File: Comments.pdf

Author Response

Reviewer 3 items:

Misconnection between the purpose/contribution of the manuscript and the empirical design/findings: when it comes to the empirical design section, I (as a reader) do not see how the empirical design and findings support the arguments that the authors made. By seeing the major arguments in the manuscript, I would expect to see some comparisons of market reactions to companies with quarterly reporting frequency and to companies with semiannual or annual reporting frequency, but I do not see anything like this in the empirical design and findings. Despite the unclear explanations on the empirical design, which I will further illustrate in the following section “the second major issue”, the conclusion of the manuscript states that “The key findings demonstrate that quarterly reporting practices, in conjunction with forward-looking earnings guidance, significantly influence the magnitude and duration of market reactions to shocks at individual stock and index levels” (Line 478 to 480). By reading the above sentence, I can see the main finding of the manuscript is that quarterly reporting practices significantly influence the magnitude and duration of market reactions to shocks, however, I do not see any discussions or tests about how firms in semiannual or annual reporting frequency do in the scenario. Would the market reactions to those firms be more significantly, less significantly, or no significant difference? The current empirical findings do contribute to literature by stating that quarterly reporting practices intensify market responses and contribute to significant variations in stock price behavior in high-volatility periods and that the magnitude and persistence of the effect is sector-specific. However, these empirical findings do not contribute anything to the arguments of whether more frequent reporting practice is better or worse than the less frequent reporting practice in terms of intensifying of market reactions. Overall, there’s a clear misconnection between what the authors intend to do, as well as contributing to literature, and the empirical design and findings. To be further considered for publication, the authors need to clarify this misconnection and reconsider how to make all the arguments.
We appreciate the input from the reviewer and we have made significant and meaningful changes to manuscript to address these important concerns; The paper has been revised significantly addressing these concerns.
In the “introduction” section, the authors can briefly discuss how to conduct the empirical study and some relevant contributions to literature, in addition to the motivation of the conducting the study. For example, the paragraph (Line 215 - 223) between section 3 “Hypothesis Development” can be moved to the “introduction section.
Many thanks for the input. We have made significant revisions to the literature review section and attempted to further integrate the references to the discussion. We have followed the suggestion from the reviewer to move a paragraph to connect the lit review to the study;
The current “literature review” section is understandable to me as a reader, however, as I stated in my first major concern, there’s a misconnection between the arguments that the authors made and the empirical design and findings from the manuscript. If the authors want to continue with the current arguments and plan to contribute to the literature regarding reporting frequency and market response, the author need to significantly change the empirical design. Reversely, if the authors plan to keep the current empirical design, then the authors need to significantly revise the “literature review” to highlight some potential “gaps” within the extant literature, for example, the importance of considering market reactions in high volatility periods, as well as industry-specific factors.
Many thanks for the input. We have made significant revisions to the literature review section.
For the “hypotheses development” section, I would like to see some further discussions on how the literature review leads to the development of the hypotheses
As stated above we have made significant revisions to the literature review section to address this concern;

Additionally, I also suggest that the authors consolidate the “hypotheses development” section into the “literature review” section as a sub-section “2.4”.
This issue has been addressed as well;

For the “data and research” section, the authors need to clearly explain the validity of using firms in DJIA index and the use of current sample periods (2014-2024). Additionally, the authors need to specify the reason and the validity of using current empirical models. Specifically, I would like to see why and how each empirical model can be used to test a hypothesis, as well as the detailed explanation of the variables used in each empirical model. The current description of the empirical models is extremely confusing to readers. I do not even know what variables are used in each empirical model, not to say how well each model can be used to test a certain hypothesis.
Many thanks for the input. Please see the revised section about justification for using DJIA; and reasoning behind use of the time period, in section 4, particularly with the line starting 208.

For the “results” section, I have more questions. My first question/confusion part is where the tables are for this section. I can only see tables 1 and 2 in the manuscript but those two tables belong to the “data and research” section. I would like to see in the section some additional tables, some additional explanations on the tables using statistics from the tables, and how the results of the tables support or go against which hypothesis.
Many thanks for the input. We have made significant revisions to the analysis section and have added a new table (Table 3)

Reviewer 4 Report

Comments and Suggestions for Authors

This study examines the behavior of stock prices in the Dow Jones Industrial Average under various volatility regimes, using econometric models to elucidate the dynamic interaction between financial disclosures and market reactions. The study results demonstrate that quarterly reporting practices, together with future earnings guidance, significantly influence the magnitude and duration of market reactions to shocks at both the individual stock and index levels. The study examines the effects of the timing and frequency of disclosures on market reactions and stock price volatility during critical earnings announcement periods. The impact of firms’ reporting practices on the assimilation of firm-specific information into stock prices is assessed. This study contributes to the literature by examining the effects of quarterly financial reporting on stock return patterns.

1. It is recommended that the introduction be structured in such a way as to bring into discussion the following elements:

- presentation of the general context and the importance of the study;

- presentation of the research gap (research opportunity) and how the article contributes to filling these gaps;

- synthetic presentation of the purpose, objectives, and research method;

- presentation of the research questions/hypotheses;

- a very synthetic presentation of the main results and theoretical and practical contributions;

- presentation of the structure of the article.

2. It is recommended to clearly emphasize the originality of the article compared to other studies and the novel elements it brings.

3. It is recommended for easier understanding of the research method and to ensure its reproducibility:

- specification of the software solutions used for statistical processing of the data and their version;

- clearer definition of the variables on which the data in Table 1 are based;

- description of the meaning of the concepts "log changes in the DJIA" and "log changes in the VIX";

- brief characterization of the SETAR model;

- clearer explanation, through more accessible language, of the terms and concepts used. For example: "the Akaike Information Criterion (AIC)", "the Schwarz Information Criterion (SIC)", "Durbin-Watson statistic" etc.;

4. It is recommended to present in a clearer manner the way in which the research carried out validates or invalidates the research hypotheses.

5. It is recommended that the research limitations be presented more explicitly.

6. It is recommended to verify the concordance between the indicated work and the associated link in the bibliography (for example, at positions 1, 2, 8, 11, 18, 20, etc., the links lead to works other than those indicated).

Author Response

Reviewer 4 items:

It is recommended that the introduction be structured in such a way as to bring into discussion the following elements:

- presentation of the general context and the importance of the study;

- presentation of the research gap (research opportunity) and how the article contributes to filling these gaps;

- synthetic presentation of the purpose, objectives, and research method;

- presentation of the research questions/hypotheses;

- a very synthetic presentation of the main results and theoretical and practical contributions;

- presentation of the structure of the article.

Many thanks for the input. We have made significant revisions to the literature review and instruction sections of the manuscript to improve the readability; We have attempted to further integrate the references to the discussion.

It is recommended to clearly emphasize the originality of the article compared to other studies and the novel elements it brings.
Many thanks for this important input. We have made significant additions to the paper highlighting the originality of the paper. As stated in line 175, our manuscript is original looking at stock price volatility, including the volatility differences across the different sectors.
It is recommended for easier understanding of the research method and to ensure its reproducibility:

- specification of the software solutions used for statistical processing of the data and their version;

- clearer definition of the variables on which the data in Table 1 are based;

- description of the meaning of the concepts "log changes in the DJIA" and "log changes in the VIX";

- brief characterization of the SETAR model;

Many thanks for the input. We have made significant changes to sections 4 and 5 of the manuscript and have addressed these points.

It is recommended to present in a clearer manner the way in which the research carried out validates or invalidates the research hypotheses.

Many thanks for the input. We have revised the hypothesis section as well as the conclusion section to clarify the results of the study;

Round 2

Reviewer 2 Report

Comments and Suggestions for Authors

Thank you for the thoughtful revisions. The improved structure and added insights are appreciated, and the manuscript shows clear progress. To further enhance the paper:

Literature Review: While the new subsections add structure, the review still lacks a clear focus on the specific research questions and critical gaps. I recommend organizing the review around themes or variables tied directly to the research questions, explicitly connecting cited studies to the hypotheses, prioritizing directly relevant research, and summarizing gaps in a dedicated section.
Results and Discussion: The results remain descriptive and insufficiently linked to hypotheses or theoretical frameworks. I suggest explicitly addressing each hypothesis, interpreting findings beyond statistical results, and discussing their implications for theory, practice, and policy.

These changes will help align the manuscript with academic and practical expectations.

Author Response

Many thanks for your continued review and very insightful input. We have addressed both of the concerns in the new submission.

Literature Review: While the new subsections add structure, the review still lacks a clear focus on the specific research questions and critical gaps. I recommend organizing the review around themes or variables tied directly to the research questions, explicitly connecting cited studies to the hypotheses, prioritizing directly relevant research, and summarizing gaps in a dedicated section.

We have revised the literature review section considerably following your input. Particularly, lines 155 through 184 have significantly been revised to connect the literature to the study and to the hypothesis being tested. We feel we have addressed your concern.
Results and Discussion: The results remain descriptive and insufficiently linked to hypotheses or theoretical frameworks. I suggest explicitly addressing each hypothesis, interpreting findings beyond statistical results, and discussing their implications for theory, practice, and policy.

The results and conclusion sections (sections 5 and 6) have gone through revisions to be more clear about the findings and the implications (lines 384 through 460.) We feel we have addressed your important input.

Reviewer 3 Report

Comments and Suggestions for Authors

Thanks for the time and effort revising the manuscript. I am satisfied with the changes.

Comments on the Quality of English Language

Good to me.

Author Response

Many thanks for your valuable input during the review process. We have gone through further edits in this revised submission.

We have revised the literature review section considerably. Particularly, lines 155 through 184 have significantly been revised to connect the literature to the study and to the hypothesis being tested.

The results and conclusion sections (sections 5 and 6) have gone through revisions to be more clear about the findings and the implications (lines 384 through 460.)

Again,

Many thanks