Being Surprised by the Unsurprising: Earnings Seasonality and Stock Returns
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
June 27, 2014
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, earnings management, or calendar effects.
Number of Pages in PDF File: 56
Keywords: Earnings, Seasonality, Mispricing, Analysts, Anomalies
JEL Classification: G12, G14working papers series
Date posted: June 29, 2014 ; Last revised: July 21, 2014
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