Why stock prices are set to swing wildly this ASX reporting season

What would have been considered an extreme two-standard-deviation price move in 2005 is now just a normal one-standard-deviation event. The standard deviation of daily stock movements during earnings announcements has jumped from around 3% in the mid-2000s to approximately 5% today, according to the analysts.

The increase in volatility extends beyond just daily price swings. Average intraday price spreads have doubled from 3.5% in 2005 to around 7% currently, while overnight price movements following earnings releases have become similarly erratic.

Efficiency gains drive the chaos

"Share price reactions have become larger in both directions, but prices aren't drifting as much," the report notes, adding that "more of the drift is occurring at the earnings announcement as information is priced more efficiently."

This represents a fundamental shift in how Australian markets digest corporate results. Previously, stocks that beat expectations would gradually rise by around 1.5% over the following 15 days (left). Now, that same price adjustment happens immediately on results day (right), creating more dramatic initial reactions but eliminating the predictable post-earnings drift that some investors could exploit.

The disappearing edge

• Low-volatility stocks that disappoint on results day often trade sideways initially before declining by about 2% over the following 10-40 days.
• Stocks near 52-week lows that report positive surprises tend to give back their initial gains as investors use the bounce to exit positions.
• Companies with high uncertainty in analyst estimates continue to drift lower for up to 100 trading days after disappointing results.
• Stocks with limited institutional ownership that initially outperform tend to underperform over the subsequent two months.

What this means for investors

For portfolio managers, this shift means timing around earnings season becomes even more important, as the window for reaction has compressed dramatically. The days of waiting to see how the market digests results before making positioning decisions are largely over.

The findings align with similar trends observed in other developed markets, where increased access to real-time data and algorithmic trading have accelerated price discovery while amplifying short-term volatility.