Ball & Brown model

The Ball and Brown model is a financial theory that helps explain how companies’ earnings information affects their stock prices. It suggests that investors interpret earnings reports and other financial news to decide whether a company's stock is undervalued or overvalued. Positive earnings surprises tend to increase stock prices, while negative surprises tend to lower them. This model emphasizes the importance of timely and accurate financial information in guiding investor decisions and reflects the idea that stock prices incorporate all available known information, helping predict future price movements based on new earnings data.