Capital Gains Overhang and the Earnings Announcement Volume Premium

Posted: 16 Apr 2010

See all articles by Wonseok Choi

Wonseok Choi

JP Morgan Asset Management

Kenton Hoyem

Financial Engines, Inc.

Jung-Wook Kim

Seoul National University - Graduate School of Business

Date Written: April 16, 2010

Abstract

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

Choi, Wonseok and Hoyem, Kenton and Kim, Jung-Wook, Capital Gains Overhang and the Earnings Announcement Volume Premium (April 16, 2010). Financial Analysts Journal, Vol. 66, No. 2, 2010, Available at SSRN: https://ssrn.com/abstract=1591158

Wonseok Choi (Contact Author)

JP Morgan Asset Management ( email )

522 Fifth Ave.
New York, NY 10036
United States

Kenton Hoyem

Financial Engines, Inc. ( email )

1804 Embarcadero Road
Palo Alto, CA 94303
United States

Jung-Wook Kim

Seoul National University - Graduate School of Business ( email )

Seoul, 151-742
Korea, Republic of (South Korea)

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