Download this Paper Open PDF in Browser

Being Surprised by the Unsurprising: Earnings Seasonality and Stock Returns

66 Pages Posted: 29 Jun 2014 Last revised: 20 Jan 2017

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

Boston College - Carroll School of Management

Eugene F. Soltes

Harvard Business School

Date Written: March 1, 2016

Abstract

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

Keywords: Earnings, Seasonality, Mispricing, Analysts, Anomalies

JEL Classification: G12, G14

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 (March 1, 2016). Marshall School of Business Working Paper No. FBE 01.16. Available at SSRN: https://ssrn.com/abstract=2460166 or http://dx.doi.org/10.2139/ssrn.2460166

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

David H. Solomon (Contact Author)

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Eugene F. Soltes

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Paper statistics

Downloads
1,391
Rank
10,459
Abstract Views
9,225