Earnings Announcements and Systematic Risk
83 Pages Posted: 17 Mar 2011 Last revised: 12 Jan 2017
Date Written: May 15, 2015
Abstract
Firms scheduled to report earnings earn an annualized abnormal return of 9.9%. We propose a risk-based explanation for this phenomenon, in which investors use announcements to revise their expectations for non-announcing firms, but can only do so imperfectly. Consequently, the covariance between firm-specific and market cash-flow news spikes around announcements, making announcers especially risky. Consistent with our hypothesis, announcer returns forecast aggregate earnings. The announcement premium is persistent across stocks, and early (late) announcers earn higher (lower) returns. Non-announcers respond to announcements in a manner consistent with our model, both across time and cross-sectionally. Finally, exposure to announcement risk is priced.
Keywords: Asset Pricing, Risk Premia, Earnings, Announcements
JEL Classification: G12
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Stock Returns, Aggregate Earnings Surprises, and Behavioral Finance
By Jonathan Lewellen, S.p. Kothari, ...
-
Accruals and Aggregate Stock Market Returns
By David A. Hirshleifer, Kewei Hou, ...
-
Predictability and the Earnings-Returns Relation
By Gil Sadka and Ronnie Sadka
-
Predictability and the Earnings-Returns Relation
By Gil Sadka and Ronnie Sadka
-
Predicting Stock Market Returns with Aggregate Discretionary Accruals
By Qiang Kang, Qiao Liu, ...
-
Predicting Stock Market Returns with Aggregate Discretionary Accruals
By Qiang Kang, Qiao Liu, ...