To explain the stock market’s reaction to earnings results, investors and other market participants have a standard tool that has been around for decades: the earnings surprise. 

This measure, which compares reported earnings per share against analysts’ consensus earnings-per-share forecasts, indicates how much a company beat or missed analyst predictions. 

Its intuitive nature has made it the primary go-to for describing post-announcement stock movements, even though the metric alone explains only about 5% of same-day stock moves. Adding in the rest of what researchers have learned over the years pushes that figure only a little higher.

However, new research by Ralph S.J. Koijen and Bradford Levy of the University…