Capital Gains Overhang and the Earnings Announcement Volume Premium
Posted: 16 Apr 2010
Date Written: April 16, 2010
This study examined why stocks that experience high abnormal trading volume around earnings announcements earn high returns. The high returns of high-volume stocks appear to be associated with selling pressure that is independent of fundamentals and that comes from a subset of investors who base their selling decisions on the magnitude of unrealized capital gains or losses. Supplementary evidence based on account-level data from a U.S. brokerage firm suggests extra selling pressure for stocks with large capital losses around earnings announcements. These patterns also suggest that the conventional interpretation of the disposition effect may not hold for stocks with large, unrealized capital losses around earnings announcements.
Keywords: Behavioral Finance, Equity Investments, Fundamental Analysis (Sector, Industry, Company) and the Valuation of Individual Equity Securities, Portfolio Management, Equity Portfolio Management Strategies
Suggested Citation: Suggested Citation