Earnings Announcements and Systematic Risk
Pavel G. Savor
Temple University - Fox School of Business
Mungo Ivor Wilson
University of Oxford - Said Business School
May 15, 2015
Journal of Finance, Forthcoming
AFA 2012 Chicago Meetings Paper
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.
Number of Pages in PDF File: 83
Keywords: Asset Pricing, Risk Premia, Earnings, Announcements
JEL Classification: G12
Date posted: March 17, 2011 ; Last revised: May 16, 2015
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