Abstract

http://ssrn.com/abstract=2460166
 


 



Being Surprised by the Unsurprising: Earnings Seasonality and Stock Returns


Tom Chang


University of Southern California - Marshall School of Business - Finance and Business Economics Department

Samuel M. Hartzmark


University of Chicago - Booth School of Business

David H. Solomon


University of Southern California - Marshall School of Business

Eugene F. Soltes


Harvard Business School

October 2014


Abstract:     
We present evidence that markets fail to properly price information in seasonal earnings patterns. Firms whose earnings are historically larger in one quarter of the year (“high seasonality quarters”) have higher returns when those earnings are usually announced. Analyst forecast errors are more positive in high seasonality quarters, consistent with the returns being driven by mistaken earnings estimates. We show that investors appear to overweight recent lower earnings following a high seasonality quarter, leading to pessimistic forecasts in the subsequent high seasonality quarter. The returns are not explained by announcement risk, firm-specific information, increased volume, or idiosyncratic volatility.

Number of Pages in PDF File: 57

Keywords: Earnings, Seasonality, Mispricing, Analysts, Anomalies

JEL Classification: G12, G14

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Date posted: June 29, 2014 ; Last revised: October 30, 2014

Suggested Citation

Chang, Tom and Hartzmark, Samuel M. and Solomon, David H. and Soltes, Eugene F., Being Surprised by the Unsurprising: Earnings Seasonality and Stock Returns (October 2014). Available at SSRN: http://ssrn.com/abstract=2460166 or http://dx.doi.org/10.2139/ssrn.2460166

Contact Information

Tom Chang
University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )
Marshall School of Business
Los Angeles, CA 90089
United States
Samuel M. Hartzmark
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Chicago Booth School of Business Logo

David H. Solomon (Contact Author)
University of Southern California - Marshall School of Business ( email )
Los Angeles, CA 90089
United States
Eugene F. Soltes
Harvard Business School ( email )
Boston, MA 02163
United States
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