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Anomalies and News

65 Pages Posted: 17 Jul 2015 Last revised: 23 Nov 2017

Joseph Engelberg

University of California, San Diego (UCSD) - Rady School of Management

R. David McLean

Georgetown University - Department of Finance

Jeffrey Pontiff

Boston College - Department of Finance

Date Written: November 22, 2017

Abstract

Using a sample of 97 stock return anomalies, we find that anomaly returns are 50% higher on corporate news days and are 6 times higher on earnings announcement days. These results could be explained by dynamic risk, mispricing via biased expectations, and data mining. We develop and conduct unique tests to differentiate between these three frameworks. Our results are most consistent with the idea that anomaly returns are the result of biased expectations, which are at least partially corrected upon news arrival.

Keywords: News, Anomalies, Cross-sectional return predictability, earnings announcements, market efficiency

JEL Classification: G00, G14, L3, C1

Suggested Citation

Engelberg, Joseph and McLean, R. David and Pontiff, Jeffrey, Anomalies and News (November 22, 2017). Journal of Finance, Forthcoming; 6th Miami Behavioral Finance Conference. Available at SSRN: https://ssrn.com/abstract=2631228 or http://dx.doi.org/10.2139/ssrn.2631228

Joseph Engelberg

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

R. David McLean

Georgetown University - Department of Finance ( email )

3700 O Street, NW
Washington, DC Washington DC 20057
United States

Jeffrey Pontiff (Contact Author)

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

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