83 Pages Posted: 17 Mar 2011 Last revised: 12 Jan 2017
Date Written: May 15, 2015
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.
Keywords: Asset Pricing, Risk Premia, Earnings, Announcements
JEL Classification: G12
Suggested Citation: Suggested Citation
Savor, Pavel G. and Wilson, Mungo Ivor, Earnings Announcements and Systematic Risk (May 15, 2015). Journal of Finance, vol. 71, 2016, 83–138. 2016 Amundi Smith Breeden Prize; AFA 2012 Chicago Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1786308 or http://dx.doi.org/10.2139/ssrn.1786308