The Disappearing Earnings Announcement Premium

Abstract

The earnings announcement premium (EAP), whereby a stock earns abnormal returns over its earnings announcement period, has been the subject of extensive academic research. We provide the first evidence that this premium has disappeared from the US markets in recent years. The disappearance likely has a US-specific cause, since the premium appears robust internationally. We theorize and empirically demonstrate that the 2004 Disclosure Regulation, which led to increasingly frequent and more comprehensive filings of material information (Form 8-K), played a role in the disappearance. Mandated 8-K filings appear to eliminate information uncertainty and asymmetry about idiosyncratic firm events, which gave rise to the EAP before 2004. This evidence is therefore consistent with rational uncertainty-based explanations, rather than behavioral limited-attention theories for the erstwhile existence of the EAP.

Keywords: Earnings announcement premium, Disclosure, 8-K filings

JEL Classification: G14, G28